TRAVELERS COMPANIES, INC. - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________________

FORM 10-Q

_________________________________________________________

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐ 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)

_________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, without par value

TRV

New York Stock Exchange

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	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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 ☐ No ý

The number of shares of the Registrant’s Common Stock, without par value, outstanding at October 14, 2022 was 234,347,525.

The Travelers Companies, Inc.

Quarterly Report on Form 10-Q

For Quarterly Period Ended September 30, 2022

_________________________________________________________

TABLE OF CONTENTS


		Page
	Part I — Financial Information

Item 1.	Financial Statements:

	Consolidated Statement of Income (Unaudited) — Three Months and Nine Months Ended September 30, 2022 and 2021	3

	Consolidated Statement of Comprehensive Income (Loss) (Unaudited) — Three Months and Nine Months Ended September 30, 2022 and 2021	4

	Consolidated Balance Sheet — September 30, 2022 (Unaudited) and December 31, 2021	5

	Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) — Three Months and Nine Months Ended September 30, 2022 and 2021	6

	Consolidated Statement of Cash Flows (Unaudited) — Nine Months Ended September 30, 2022 and 2021	7

	Notes to Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	66

Item 4.	Controls and Procedures	66

	Part II — Other Information

Item 1.	Legal Proceedings	67

Item 1A.	Risk Factors	67

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67

Item 5.	Other Information	67

Item 6.	Exhibits	68

	SIGNATURES	69

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,
	2022		2021		2022		2021

Revenues
Premiums	$	8,615	$	7,829	$	24,946	$	22,831
Net investment income	593		771		1,937		2,290
Fee income	104		97		307		302
Net realized investment gains (losses)	(93)		8		(211)		113
Other revenues	84		100		269		269

Total revenues	9,303		8,805		27,248		25,805

Claims and expenses
Claims and claim adjustment expenses	6,088		5,464		16,930		15,479
Amortization of deferred acquisition costs	1,406		1,281		4,081		3,742
General and administrative expenses	1,193		1,187		3,607		3,524
Interest expense	88		87		263		252
Total claims and expenses	8,775		8,019		24,881		22,997

Income before income taxes	528		786		2,367		2,808
Income tax expense	74		124		344		479
Net income	$	454	$	662	$	2,023	$	2,329

Net income per share
Basic	$	1.91	$	2.65	$	8.43	$	9.24
Diluted	$	1.89	$	2.62	$	8.34	$	9.16

Weighted average number of common shares outstanding
Basic	235.4		247.7		238.3		250.1
Diluted	237.9		250.1		240.9		252.4

Cash dividends declared per common share	$	0.93	$	0.88	$	2.74	$	2.61

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

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(in millions)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

Net income	$	454	$	662	$	2,023	$	2,329

Other comprehensive income (loss)
Changes in net unrealized gains (losses) on investment securities:
Having no credit losses recognized in the consolidated statement of income	(3,204)		(686)		(11,078)		(1,749)
Having credit losses recognized in the consolidated statement of income	—		—		(3)		—
Net changes in benefit plan assets and obligations	12		26		34		77
Net changes in unrealized foreign currency translation	(251)		(91)		(423)		(25)
Other comprehensive loss before income taxes	(3,443)		(751)		(11,470)		(1,697)
Income tax benefit	(690)		(148)		(2,369)		(361)
Other comprehensive loss, net of taxes	(2,753)		(603)		(9,101)		(1,336)
Comprehensive income (loss)	$	(2,299)	$	59	$	(7,078)	$	993

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

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in millions)


	September 30, 2022		December 31, 2021
	(Unaudited)
Assets
Fixed maturities, available for sale, at fair value (amortized cost $76,471 and $74,751; allowance for expected credit losses of $3 and $3)	$	68,450	$	77,810
Equity securities, at fair value (cost $757 and $749)	774		893
Real estate investments	954		979
Short-term securities	3,927		3,836
Other investments	4,008		3,857
Total investments	78,113		87,375
Cash	773		761
Investment income accrued	583		615
Premiums receivable (net of allowance for expected credit losses of $86 and $107)	8,886		8,085
Reinsurance recoverables (net of allowance for estimated uncollectible reinsurance of $133 and $141)	8,202		8,452
Ceded unearned premiums	1,199		902
Deferred acquisition costs	2,858		2,542
Deferred taxes	2,175		—
Contractholder receivables (net of allowance for expected credit losses of $18 and $21)	3,749		3,890
Goodwill	3,922		4,008
Other intangible assets	287		306
Other assets	3,570		3,530
Total assets	$	114,317	$	120,466

Liabilities
Claims and claim adjustment expense reserves	$	58,138	$	56,907
Unearned premium reserves	18,364		16,469
Contractholder payables	3,767		3,911
Payables for reinsurance premiums	629		384
Deferred taxes	—		289
Debt	7,291		7,290
Other liabilities	6,222		6,329
Total liabilities	94,411		91,579

Shareholders’ equity
Common stock (1,750.0 shares authorized; 234.3 and 241.2 shares issued and outstanding)	24,472		24,154
Retained earnings	42,917		41,555
Accumulated other comprehensive income (loss)	(7,908)		1,193
Treasury stock, at cost (550.8 and 541.5 shares)	(39,575)		(38,015)
Total shareholders’ equity	19,906		28,887
Total liabilities and shareholders’ equity	$	114,317	$	120,466

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

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(in millions)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

Common stock
Balance, beginning of period	$	24,419	$	24,002	$	24,154	$	23,743
Employee share-based compensation	11		45		176		214
Compensation amortization under share-based plans and other changes	42		37		142		127
Balance, end of period	24,472		24,084		24,472		24,084

Retained earnings
Balance, beginning of period	42,684		39,998		41,555		38,771


Net income	454		662		2,023		2,329
Dividends	(221)		(220)		(660)		(660)
Other	—		(2)		(1)		(2)
Balance, end of period	42,917		40,438		42,917		40,438

Accumulated other comprehensive income (loss), net of tax
Balance, beginning of period	(5,155)		1,769		1,193		2,502


Other comprehensive loss	(2,753)		(603)		(9,101)		(1,336)
Balance, end of period	(7,908)		1,166		(7,908)		1,166

Treasury stock, at cost
Balance, beginning of period	(39,074)		(36,613)		(38,015)		(35,815)
Treasury stock acquired — share repurchase authorizations	(500)		(600)		(1,500)		(1,356)
Net shares acquired related to employee share-based compensation plans	(1)		(1)		(60)		(43)
Balance, end of period	(39,575)		(37,214)		(39,575)		(37,214)

Total shareholders’ equity	$	19,906	$	28,474	$	19,906	$	28,474

Common shares outstanding
Balance, beginning of period	237.3		249.5		241.2		252.4
Treasury stock acquired — share repurchase authorizations	(3.1)		(3.8)		(8.9)		(8.8)
Net shares issued under employee share-based compensation plans	0.1		0.3		2.0		2.4
Balance, end of period	234.3		246.0		234.3		246.0

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

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

(in millions)


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities
Net income	$	2,023	$	2,329
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment (gains) losses	211		(113)
Depreciation and amortization	639		662
Deferred federal income tax expense (benefit)	(130)		61
Amortization of deferred acquisition costs	4,081		3,742
Equity in income from other investments	(319)		(774)
Premiums receivable	(861)		(462)
Reinsurance recoverables	185		20
Deferred acquisition costs	(4,419)		(3,955)
Claims and claim adjustment expense reserves	1,694		2,299
Unearned premium reserves	2,033		1,460
Other	(12)		313
Net cash provided by operating activities	5,125		5,582
Cash flows from investing activities
Proceeds from maturities of fixed maturities	5,481		6,523
Proceeds from sales of investments:
Fixed maturities	3,951		2,864
Equity securities	104		74
Real estate investments	10		7
Other investments	242		275
Purchases of investments:
Fixed maturities	(12,100)		(14,356)
Equity securities	(112)		(375)
Real estate investments	(28)		(22)
Other investments	(414)		(336)
Net sales (purchases) of short-term securities	(107)		754
Securities transactions in the course of settlement	214		407
Acquisitions, net of cash acquired	(4)		(38)
Other	(291)		(199)
Net cash used in investing activities	(3,054)		(4,422)

Cash flows from financing activities
Treasury stock acquired — share repurchase authorizations	(1,500)		(1,356)
Treasury stock acquired — net employee share-based compensation	(60)		(43)
Dividends paid to shareholders	(656)		(655)

Issuance of debt	—		739
Issuance of common stock — employee share options	205		256
Net cash used in financing activities	(2,011)		(1,059)
Effect of exchange rate changes on cash	(48)		(4)
Net increase in cash	12		97
Cash at beginning of year	761		721
Cash at end of period	$	773	$	818

Supplemental disclosure of cash flow information
Income taxes paid	$	663	$	543
Interest paid	$	234	$	222

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

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, 2021 (the Company’s 2021 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 prior period to conform to the 2022 presentation.

Adoption of Accounting Standards

For information regarding accounting standards that the Company adopted during the periods presented, see note 1 of the notes to the consolidated financial statements in the Company’s 2021 Annual Report.

Enactment of the Inflation Reduction Act of 2022

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act (IRA) which, among other changes, created a new corporate alternative minimum tax (AMT) based on adjusted financial statement income and imposes a 1% excise tax on corporate stock repurchases. The effective date of these provisions is January 1, 2023. The Company does not expect the enactment of the IRA will have an impact on the Company’s financial statements in 2022. While the Company expects to be an applicable corporation subject to the AMT tax beginning in 2023 based on its reported GAAP earnings for the past three years, the Company expects any AMT tax incurred to be treated as a taxable temporary difference and have no direct impact on total income tax expense, subject to any additional guidance or regulations that may be issued. Any excise tax incurred on corporate stock repurchases will generally be recognized as part of the cost basis of the treasury stock acquired and not reported as part of income tax expense.

2. SEGMENT INFORMATION

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 the notes to the consolidated financial statements in the Company’s 2021 Annual Report.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

2. SEGMENT INFORMATION, Continued

The following tables summarize the components of the Company’s revenues, income (loss) 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

2022
Premiums	$	4,353	$	877	$	3,385	$	8,615
Net investment income	426		65		102		593
Fee income	96		—		8		104
Other revenues	56		6		22		84
Total segment revenues (1)	$	4,931	$	948	$	3,517	$	9,396
Segment income (loss) (1)	$	471	$	242	$	(111)	$	602

2021
Premiums	$	3,970	$	806	$	3,053	$	7,829
Net investment income	575		63		133		771
Fee income	90		—		7		97
Other revenues	69		5		26		100
Total segment revenues (1)	$	4,704	$	874	$	3,219	$	8,797
Segment income (loss) (1)	$	558	$	174	$	(2)	$	730

________________________________________________________

(1)Segment revenues for reportable business segments exclude net realized investment gains (losses) and revenues included in "interest expense and other." Segment income (loss) for reportable business segments excludes the after-tax impact of net realized investment gains (losses) and income (loss) from "interest expense and other."


(For the nine months ended September 30, in millions)	Business Insurance		Bond & Specialty Insurance		Personal Insurance		Total Reportable Segments
2022
Premiums	$	12,642	$	2,548	$	9,756	$	24,946
Net investment income	1,415		188		334		1,937
Fee income	285		—		22		307
Other revenues	194		14		61		269
Total segment revenues (1)	$	14,536	$	2,750	$	10,173	$	27,459
Segment income (loss) (1)	$	1,806	$	687	$	(79)	$	2,414

2021
Premiums	$	11,649	$	2,325	$	8,857	$	22,831
Net investment income	1,713		186		391		2,290
Fee income	282		—		20		302
Other revenues	179		17		73		269
Total segment revenues (1)	$	13,823	$	2,528	$	9,341	$	25,692
Segment income (1)	$	1,518	$	498	$	433	$	2,449

_________________________________________________________

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)	2022		2021		2022		2021
Revenue reconciliation
Earned premiums
Business Insurance:
Domestic:
Workers’ compensation	$	872	$	789	$	2,566	$	2,410
Commercial automobile	754		718		2,202		2,122
Commercial property	668		582		1,914		1,669
General liability	728		662		2,116		1,887
Commercial multi-peril	1,057		939		3,034		2,708
Other	19		17		52		45
Total Domestic	4,098		3,707		11,884		10,841
International	255		263		758		808
Total Business Insurance	4,353		3,970		12,642		11,649
Bond & Specialty Insurance:
Domestic:
Fidelity and surety	307		277		876		819
General liability	396		365		1,154		1,043
Other	57		54		166		165
Total Domestic	760		696		2,196		2,027
International	117		110		352		298
Total Bond & Specialty Insurance	877		806		2,548		2,325
Personal Insurance:
Domestic:
Automobile	1,575		1,445		4,544		4,220
Homeowners and Other	1,648		1,437		4,714		4,122
Total Domestic	3,223		2,882		9,258		8,342
International	162		171		498		515
Total Personal Insurance	3,385		3,053		9,756		8,857
Total earned premiums	8,615		7,829		24,946		22,831
Net investment income	593		771		1,937		2,290
Fee income	104		97		307		302
Other revenues	84		100		269		269
Total segment revenues	9,396		8,797		27,459		25,692

Net realized investment gains (losses)	(93)		8		(211)		113
Total revenues	$	9,303	$	8,805	$	27,248	$	25,805
Income reconciliation, net of tax
Total segment income	$	602	$	730	$	2,414	$	2,449
Interest Expense and Other (1)	(76)		(75)		(226)		(216)
Core income	526		655		2,188		2,233
Net realized investment gains (losses)	(72)		7		(165)		88
Impact of changes in tax laws and/or tax rates (2)	—		—		—		8
Net income	$	454	$	662	$	2,023	$	2,329

_________________________________________________________

(1)The primary component of Interest Expense and Other was after-tax interest expense of $70 million and $69 million for the three months ended September 30, 2022 and 2021, respectively, and $208 million and $199 million for the nine months ended September 30, 2022 and 2021, respectively.

(2)Impact is recognized in the accounting period in which the change is enacted.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

2. SEGMENT INFORMATION, Continued


(in millions)	September 30, 2022		December 31, 2021
Asset reconciliation
Business Insurance	$	85,149	$	90,353
Bond & Specialty Insurance	10,128		10,146
Personal Insurance	18,069		18,983
Total assets by reportable segment	113,346		119,482
Other assets (1)	971		984
Total consolidated assets	$	114,317	$	120,466

_________________________________________________________

(1)The primary components of other assets at both September 30, 2022 and December 31, 2021 were the over-funded benefit plan assets related to the Company’s qualified domestic pension plan and other intangible assets.

3. INVESTMENTS

Fixed Maturities

The amortized cost and fair value of investments in fixed maturities classified as available for sale were as follows:


	Amortized Cost		Allowance for Expected Credit Losses		Gross Unrealized				Fair Value
(at September 30, 2022, in millions)					Gains		Losses
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	4,453	$	—	$	—	$	419	$	4,034
Obligations of U.S. states, municipalities and political subdivisions:
Local general obligation	19,851		—		5		2,644		17,212
Revenue	11,066		—		7		1,265		9,808
State general obligation	1,131		—		1		128		1,004
Pre-refunded	3,100		—		10		6		3,104
Total obligations of U.S. states, municipalities and political subdivisions	35,148		—		23		4,043		31,128
Debt securities issued by foreign governments	995		—		1		55		941
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	2,020		—		10		210		1,820
Corporate and all other bonds	33,855		3		22		3,347		30,527
Total	$	76,471	$	3	$	56	$	8,074	$	68,450

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

3. INVESTMENTS, Continued


	Amortized Cost		Allowance for Expected Credit Losses		Gross Unrealized				Fair Value
(at December 31, 2021, in millions)					Gains		Losses
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	3,574	$	—	$	20	$	32	$	3,562
Obligations of U.S. states, municipalities and political subdivisions:
Local general obligation	18,668		—		1,045		46		19,667
Revenue	11,274		—		693		27		11,940
State general obligation	1,158		—		67		2		1,223
Pre-refunded	3,825		—		207		—		4,032
Total obligations of U.S. states, municipalities and political subdivisions	34,925		—		2,012		75		36,862
Debt securities issued by foreign governments	1,041		—		7		7		1,041
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	1,754		—		68		5		1,817
Corporate and all other bonds	33,457		3		1,249		175		34,528
Total	$	74,751	$	3	$	3,356	$	294	$	77,810

Pre-refunded bonds of $3.10 billion and $4.03 billion at September 30, 2022 and December 31, 2021, respectively, were bonds for which U.S. states or municipalities have established irrevocable trusts that are 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 the sales of fixed maturities classified as available for sale were $3.95 billion and $2.86 billion during the nine months ended September 30, 2022 and 2021, respectively. Gross gains of $17 million and $56 million and gross losses of $52 million and $5 million were realized on those sales during the nine months ended September 30, 2022 and 2021, respectively.

Equity Securities

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


							Fair
(at September 30, 2022, in millions)	Cost		Gross Gains		Gross Losses		Value
Common stock	$	704	$	55	$	43	$	716
Non-redeemable preferred stock	53		6		1		58
Total	$	757	$	61	$	44	$	774


							Fair
(at December 31, 2021, in millions)	Cost		Gross Gains		Gross Losses		Value
Common stock	$	694	$	137	$	4	$	827
Non-redeemable preferred stock	55		11		—		66
Total	$	749	$	148	$	4	$	893

For the nine months ended September 30, 2022 and 2021, the Company recognized $(110) million and $45 million of net gains (losses) on equity securities still held as of September 30, 2022 and 2021, respectively.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

3. INVESTMENTS, Continued

Unrealized Investment Losses

The following tables summarize, for all fixed maturities classified as available for sale in an unrealized loss position at September 30, 2022 and December 31, 2021, the aggregate fair value and gross unrealized loss by the 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 the notes to the consolidated financial statements in the Company’s 2021 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 the notes to the consolidated financial statements in the Company’s 2021 Annual Report to determine whether a credit loss impairment exists.


	Less than 12 months				12 months or longer				Total
(at September 30, 2022, 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	$	2,641	$	179	$	1,389	$	240	$	4,030	$	419
Obligations of U.S. states, municipalities and political subdivisions	25,138		3,245		2,526		798		27,664		4,043
Debt securities issued by foreign governments	614		24		305		31		919		55
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	1,532		171		168		39		1,700		210
Corporate and all other bonds	25,737		2,240		4,437		1,107		30,174		3,347
Total	$	55,662	$	5,859	$	8,825	$	2,215	$	64,487	$	8,074


	Less than 12 months				12 months or longer				Total
(at December 31, 2021, 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	$	2,438	$	32	$	5	$	—	$	2,443	$	32
Obligations of U.S. states, municipalities and political subdivisions	3,873		69		153		6		4,026		75
Debt securities issued by foreign governments	452		7		7		—		459		7
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	426		5		1		—		427		5
Corporate and all other bonds	7,306		153		436		22		7,742		175
Total	$	14,495	$	266	$	602	$	28	$	15,097	$	294

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

3. INVESTMENTS, Continued

The following table summarizes, for all fixed maturities reported at fair value for which fair value is less than 80% of amortized cost at September 30, 2022, the gross unrealized investment loss by length of time those securities have continuously been in an unrealized loss position of greater than 20% of amortized cost:


	Period For Which Fair Value is Less Than 80% of Amortized Cost
(at September 30, 2022, in millions)	3 months or less		Greater than 3 months, 6 months or less		Greater than 6 months, 12 months or less		Greater than 12 months		Total
Fixed maturities
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	—	$	—	$	—	$	—	$	—
Obligations of U.S. states, municipalities and political subdivisions	1,523		514		239		—		2,276
Debt securities issued by foreign governments	—		—		—		—		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	69		—		—		—		69
Corporate and all other bonds	1,273		10		—		—		1,283
Total	$	2,865	$	524	$	239	$	—	$	3,628

At December 31, 2021, the Company had no fixed maturity investments reported at fair value for which fair value was less than 80% of amortized cost. Recent increases in interest rates resulted in the gross unrealized investment losses above; however, since the Company generally holds its high-quality fixed maturity investments to maturity, the net unrealized loss is generally considered temporary in nature and is not expected to result in significant realized losses.

Credit Impairment Charges

The following tables present changes in the allowance for expected credit losses on fixed maturities classified as available for sale for the category of Corporate and All Other Bonds (no other categories of fixed maturities currently have an allowance for expected credit losses):


	Fixed Maturities
	Corporate and All Other Bonds
	At and For the Three Months Ended
(in millions)	September 30, 2022		September 30, 2021

Balance, beginning of period	$	4	$	2
Additions for expected credit losses on securities where no credit losses were previously recognized	—		—
Additions (reductions) for expected credit losses on securities where credit losses were previously recognized	—		1
Reductions due to sales/defaults of credit-impaired securities	(1)		(1)
Reductions for impairments of securities which the Company intends to sell or more likely than not will be required to sell	—		—
Balance, end of period	$	3	$	2

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

3. INVESTMENTS, Continued


	Fixed Maturities
	Corporate and All Other Bonds
	At and For the Nine Months Ended
(in millions)	September 30, 2022		September 30, 2021

Balance, beginning of period	$	3		$	2
Additions for expected credit losses on securities where no credit losses were previously recognized	—			1
Additions (reductions) for expected credit losses on securities where credit losses were previously recognized	1			—
Reductions due to sales/defaults of credit-impaired securities	(1)			(1)
Reductions for impairments of securities which the Company intends to sell or more likely than not will be required to sell	—			—
Balance, end of period	$	3		$	2

Total net impairment charges, including credit impairments, reported in net realized investment gains (losses) in the consolidated statement of income, were $14 million and $1 million for the three months ended September 30, 2022 and 2021, respectively, and $35 million and $1 million for the nine months ended September 30, 2022 and 2021, respectively. Credit losses related to the fixed maturity portfolio for both the three months and nine months ended September 30, 2022 and 2021 represented 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.

Other Investments

Included in other investments are private equity, hedge fund and real estate partnerships that are accounted for under the equity method of accounting and typically report their financial statement information to the Company one month to three months following the end of the reporting period. Accordingly, net investment income from these other investments is generally reflected in the Company's financial statements on a quarter lag basis.

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.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

4. FAIR VALUE MEASUREMENTS, Continued

Valuation of Investments Reported at Fair Value in Financial Statements

The Company utilized a pricing service to estimate fair value measurements for approximately 99% of its fixed maturities at both September 30, 2022 and December 31, 2021.

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 either another internal pricing matrix, a present value income approach, or a broker quote (collectively, the other methodologies). The other methodologies include some unobservable inputs that are significant to the valuation. Due to the limited amount of observable market information available in the estimation of fair value, the Company includes the fair value estimates for bonds that are valued using the other methodologies in Level 3.

For certain investments in non-public common and preferred equity securities, the fair value estimate is determined either internally or by an external fund manager based on the impact of recent observable transactions on the investment, recent filings, operating results, balance sheet stability, growth and other business and market sector fundamentals. Due to the significant unobservable inputs in these valuations, the Company included the fair value estimate of $346 million and $343 million for these investments at September 30, 2022 and December 31, 2021, respectively, in the amounts disclosed in Level 3.

For more information regarding the valuation of the Company’s fixed maturities, equity securities and other investments, see note 4 of the notes to the consolidated financial statements in the Company’s 2021 Annual Report.

Fair Value Hierarchy

The following tables present the level within the fair value hierarchy at which the Company’s financial assets and financial liabilities are measured on a recurring basis.


(at September 30, 2022, 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	$	4,034	$	4,034	$	—	$	—
Obligations of U.S. states, municipalities and political subdivisions	31,128		—		31,128		—
Debt securities issued by foreign governments	941		—		941		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	1,820		—		1,820		—
Corporate and all other bonds	30,527		3		30,278		246
Total fixed maturities	68,450		4,037		64,167		246
Equity securities
Common stock	716		394		—		322
Non-redeemable preferred stock	58		15		19		24
Total equity securities	774		409		19		346
Other investments	15		14		—		1
Total	$	69,239	$	4,460	$	64,186	$	593

Other liabilities	$	3	$	—	$	—	$	3

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

4. FAIR VALUE MEASUREMENTS, Continued


(at December 31, 2021, 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	$	3,562	$	3,562	$	—	$	—
Obligations of U.S. states, municipalities and political subdivisions	36,862		—		36,858		4
Debt securities issued by foreign governments	1,041		—		1,041		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	1,817		—		1,762		55
Corporate and all other bonds	34,528		—		34,339		189
Total fixed maturities	77,810		3,562		74,000		248
Equity securities
Common stock	827		509		—		318
Non-redeemable preferred stock	66		21		20		25
Total equity securities	893		530		20		343
Other investments	23		18		—		5
Total	$	78,726	$	4,110	$	74,020	$	596

Other liabilities	$	3	$	—	$	—	$	3

There was no significant activity in Level 3 of the hierarchy during the nine months ended September 30, 2022.

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, 2022, in millions)	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets
Short-term securities	$	3,927	$	3,927	$	617	$	3,268	$	42
Financial liabilities
Debt	$	7,191	$	6,457	$	—	$	6,457	$	—
Commercial paper	100		100		—		100		—


(at December 31, 2021, in millions)	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets
Short-term securities	$	3,836	$	3,836	$	1,163	$	2,615	$	58
Financial liabilities
Debt	$	7,190	$	9,085	$	—	$	9,085	$	—
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, 2022 or the year ended December 31, 2021.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

5. ALLOWANCE FOR EXPECTED CREDIT LOSSES

Premiums Receivable

The following tables present the balances of premiums receivable, net of the allowance for expected credit losses, at September 30, 2022 and 2021, and the changes in the allowance for expected credit losses for the three and nine months ended September 30, 2022 and 2021.


	At and For the Three Months Ended September 30, 2022				At and For the Three Months Ended September 30, 2021
(in millions)	Premiums Receivable, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses		Premiums Receivable, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses

Balance, beginning of period	$	9,132	$	89	$	8,555	$	105

Current period change for expected credit losses			14				15
Write-offs of uncollectible premiums receivable			17				18

Balance, end of period	$	8,886	$	86	$	8,289	$	102


	At and For the Nine Months Ended September 30, 2022				At and For the Nine Months Ended September 30, 2021
(in millions)	Premiums Receivable, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses		Premiums Receivable, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses

Balance, beginning of period	$	8,085	$	107	$	7,829	$	105

Current period change for expected credit losses			49				45
Write-offs of uncollectible premiums receivable			70				48

Balance, end of period	$	8,886	$	86	$	8,289	$	102

Reinsurance Recoverables

The following tables present the balances of reinsurance recoverables, net of the allowance for estimated uncollectible reinsurance, at September 30, 2022 and 2021, and the changes in the allowance for estimated uncollectible reinsurance for the three and nine months ended September 30, 2022 and 2021.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

5. ALLOWANCE FOR EXPECTED CREDIT LOSSES, Continued


	At and For the Three Months Ended September 30, 2022				At and For the Three Months Ended September 30, 2021
(in millions)	Reinsurance Recoverables, Net of Allowance for Estimated Uncollectible Reinsurance		Allowance for Estimated Uncollectible Reinsurance		Reinsurance Recoverables, Net of Allowance for Estimated Uncollectible Reinsurance		Allowance for Estimated Uncollectible Reinsurance

Balance, beginning of period	$	8,509	$	132	$	8,209	$	135


Current period change for estimated uncollectible reinsurance			1				7
Write-offs of uncollectible reinsurance recoverables			—				—
Balance, end of period	$	8,202	$	133	$	8,329	$	142


	At and For the Nine Months Ended September 30, 2022				At and For the Nine Months Ended September 30, 2021
(in millions)	Reinsurance Recoverables, Net of Allowance for Estimated Uncollectible Reinsurance		Allowance for Estimated Uncollectible Reinsurance		Reinsurance Recoverables, Net of Allowance for Estimated Uncollectible Reinsurance		Allowance for Estimated Uncollectible Reinsurance

Balance, beginning of period	$	8,452	$	141	$	8,350	$	146


Current period change for estimated uncollectible reinsurance			(8)				(4)
Write-offs of uncollectible reinsurance recoverables			—				—
Balance, end of period	$	8,202	$	133	$	8,329	$	142

Of the total reinsurance recoverables at September 30, 2022, $5.84 billion, or 87%, were rated by A.M. Best Company, after deducting mandatory pools and associations and before allowances for estimated uncollectible reinsurance. The Company utilizes updated A.M. Best credit ratings on a quarterly basis when determining the allowance. Of the total rated by A.M. Best Company, 94% were rated A- or better. The remaining 13% of reinsurance recoverables were comprised of the following: 6% related to captive insurance companies, 1% related to the Company’s participation in voluntary pools and 6% were balances from other companies not rated by A.M. Best Company. Certain of the Company's reinsurance recoverables are collateralized by letters of credit, funds held or trust agreements.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

5. ALLOWANCE FOR EXPECTED CREDIT LOSSES, Continued

Contractholder Receivables

The following tables present the balances of contractholder receivables, net of the allowance for expected credit losses, at September 30, 2022 and 2021, and the changes in the allowance for expected credit losses for the three and nine months ended September 30, 2022 and 2021.


	At and For the Three Months Ended September 30, 2022				At and For the Three Months Ended September 30, 2021
(in millions)	Contractholder Receivables, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses		Contractholder Receivables, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses

Balance, beginning of period	$	3,735	$	18	$	4,016	$	19

Current period change for expected credit losses			—				—
Write-offs of uncollectible contractholder receivables			—				—

Balance, end of period	$	3,749	$	18	$	4,024	$	19


	At and For the Nine Months Ended September 30, 2022				At and For the Nine Months Ended September 30, 2021
(in millions)	Contractholder Receivables, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses		Contractholder Receivables, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses

Balance, beginning of period	$	3,890	$	21	$	4,242	$	19

Current period change for expected credit losses			(2)				—
Write-offs of uncollectible contractholder receivables			1				—

Balance, end of period	$	3,749	$	18	$	4,024	$	19

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

6. 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, 2022		December 31, 2021
Business Insurance	$	2,538	$	2,610
Bond & Specialty Insurance	550		550
Personal Insurance	808		822
Other	26		26
Total	$	3,922	$	4,008

Other Intangible Assets

The following tables present a summary of the Company’s other intangible assets by major asset class.


(at September 30, 2022, in millions)	Gross Carrying Amount		Accumulated Amortization		Net
Subject to amortization
Customer-related	$	91	$	43	$	48
Contract-based (1)	204		190		14
Total subject to amortization	295		233		62
Not subject to amortization	225		—		225
Total	$	520	$	233	$	287


(at December 31, 2021, in millions)	Gross Carrying Amount		Accumulated Amortization		Net
Subject to amortization
Customer-related	$	104	$	41	$	63
Contract-based (1)	205		188		17
Total subject to amortization	309		229		80
Not subject to amortization	226		—		226
Total	$	535	$	229	$	306

_________________________________________________________

(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.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

7. INSURANCE CLAIM RESERVES

Claims and claim adjustment expense reserves were as follows:


(in millions)	September 30, 2022		December 31, 2021
Property-casualty	$	58,131	$	56,897
Accident and health	7		10
Total	$	58,138	$	56,907

The following table presents a reconciliation of beginning and ending property casualty reserve balances for claims and claim adjustment expenses:


	Nine Months Ended September 30,
(in millions)	2022		2021
Claims and claim adjustment expense reserves at beginning of year	$	56,897	$	54,510
Less reinsurance recoverables on unpaid losses	8,209		8,153

Net reserves at beginning of year	48,688		46,357

Estimated claims and claim adjustment expenses for claims arising in the current year	17,257		15,813
Estimated decrease in claims and claim adjustment expenses for claims arising in prior years	(383)		(398)
Total increases	16,874		15,415

Claims and claim adjustment expense payments for claims arising in:
Current year	6,302		5,653
Prior years	8,638		7,339
Total payments	14,940		12,992
Unrealized foreign exchange gain	(391)		(18)
Net reserves at end of period	50,231		48,762
Plus reinsurance recoverables on unpaid losses	7,900		8,033
Claims and claim adjustment expense reserves at end of period	$	58,131	$	56,795

Gross claims and claim adjustment expense reserves at September 30, 2022 increased by $1.23 billion from December 31, 2021, primarily reflecting the impacts of (i) higher volumes of insured exposures, (ii) loss cost trends for the current accident year and (iii) catastrophe losses in the first nine months of 2022, partially offset by (iv) net favorable prior year reserve development.

Reinsurance recoverables on unpaid losses at September 30, 2022 decreased by $309 million from December 31, 2021, primarily reflecting decreases in mandatory pools and associations and structured settlements in the first nine months of 2022.

Prior Year Reserve Development

The following disclosures regarding reserve development are on a “net of reinsurance” basis.

For the nine months ended September 30, 2022 and 2021, estimated claims and claim adjustment expenses incurred included $383 million and $398 million, respectively, of net favorable development for claims arising in prior years, including $464 million and $443 million, respectively, of net favorable prior year reserve development, and $35 million and $36 million, respectively, of accretion of discount that impacted the Company's results of operations.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

7. INSURANCE CLAIM RESERVES, Continued

Business Insurance. Net unfavorable prior year reserve development in the third quarter of 2022 totaled $61 million, primarily driven by an addition to asbestos reserves of $212 million, partially offset by better than expected loss experience in the domestic operations' workers' compensation product line for multiple accident years and in the commercial property product line for recent accident years. Net unfavorable prior year reserve development in the third quarter of 2021 totaled $108 million, primarily driven by an addition to asbestos reserves of $225 million, partially offset by better than expected loss experience in the domestic operations' workers' compensation product line for multiple accident years.

Net favorable prior year reserve development in the first nine months of 2022 totaled $254 million, primarily driven by better than expected loss experience in the domestic operations' workers' compensation product line for multiple accident years, and in the commercial multi-peril and commercial property product lines for recent accident years, partially offset by an addition to asbestos reserves of $212 million, an addition to reserves in the domestic operations' general liability product line (excluding asbestos and environmental) including for run-off operations and an addition to environmental reserves. Net favorable prior year reserve development in the first nine months of 2021 totaled $99 million, primarily driven by better than expected loss experience in the domestic operations' workers' compensation product line for multiple accident years and in the commercial automobile and commercial property product lines for recent accident years and better than expected loss experience in the segment's international operations, partially offset by an addition to asbestos reserves of $225 million, an addition to other reserves related to run-off operations and an addition to environmental reserves.

Bond & Specialty Insurance. Net favorable prior year reserve development in the third quarter of 2022 totaled $63 million, primarily driven by better than expected loss experience in the domestic operations' fidelity and surety product lines and in the general liability product line for management liability coverages for recent accident years. Net favorable prior year reserve development in the third quarter of 2021 totaled $22 million, primarily driven by better than expected loss experience in the domestic operations' fidelity and surety product lines for recent accident years.

Net favorable prior year reserve development in the first nine months of 2022 totaled $171 million, primarily driven by better than expected loss experience in the domestic operations' fidelity and surety product lines for recent accident years. Net favorable prior year reserve development in the first nine months of 2021 totaled $81 million, primarily driven by better than expected loss experience in the domestic operations' fidelity and surety product lines for recent accident years, partially offset by higher than expected loss experience in the general liability product line for management liability coverages for multiple accident years.

Personal Insurance. Net favorable prior year reserve development in the third quarter of 2022 totaled $18 million. Net favorable prior year reserve development in the third quarter of 2021 totaled $30 million, primarily driven by better than expected loss experience in domestic operations in the homeowners and other product line for recent accident years.

Net favorable prior year reserve development in the first nine months of 2022 totaled $39 million. Net favorable prior year reserve development in the first nine months of 2021 totaled $263 million, primarily driven by better than expected loss experience in the domestic operations in both the homeowners and other and automobile product lines for recent accident years.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

8. OTHER COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following tables present the changes in the Company’s accumulated other comprehensive income (loss) (AOCI) for the three months and nine months ended September 30, 2022.


	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, June 30, 2022	$	(3,971)	$	179	$	(455)	$	(908)	$	(5,155)

Other comprehensive income (loss) (OCI) before reclassifications, net of tax	(2,559)		1		—		(237)		(2,795)
Amounts reclassified from AOCI, net of tax	33		—		9		—		42
Net OCI, current period	(2,526)		1		9		(237)		(2,753)
Balance, September 30, 2022	$	(6,497)	$	180	$	(446)	$	(1,145)	$	(7,908)


	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, 2021	$	2,233	$	182	$	(473)	$	(749)	$	1,193

Other comprehensive income (loss) (OCI) before reclassifications, net of tax	(8,778)		(2)		2		(396)		(9,174)
Amounts reclassified from AOCI, net of tax	48		—		25		—		73
Net OCI, current period	(8,730)		(2)		27		(396)		(9,101)
Balance, September 30, 2022	$	(6,497)	$	180	$	(446)	$	(1,145)	$	(7,908)

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

8. OTHER COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), 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)	2022		2021		2022		2021

Changes in net unrealized gains (losses) on investment securities:
Having no credit losses recognized in the consolidated statement of income	$	(3,204)	$	(686)	$	(11,078)	$	(1,749)
Income tax benefit	(678)		(146)		(2,348)		(374)
Net of taxes	(2,526)		(540)		(8,730)		(1,375)

Having credit losses recognized in the consolidated statement of income	—		—		(3)		—
Income tax benefit	(1)		—		(1)		—
Net of taxes	1		—		(2)		—

Net changes in benefit plan assets and obligations	12		26		34		77
Income tax expense	3		5		7		16
Net of taxes	9		21		27		61

Net changes in unrealized foreign currency translation	(251)		(91)		(423)		(25)
Income tax benefit	(14)		(7)		(27)		(3)
Net of taxes	(237)		(84)		(396)		(22)

Total other comprehensive loss	(3,443)		(751)		(11,470)		(1,697)
Total income tax benefit	(690)		(148)		(2,369)		(361)
Total other comprehensive loss, net of taxes	$	(2,753)	$	(603)	$	(9,101)	$	(1,336)

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

8. OTHER COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), 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)	2022		2021		2022		2021

Reclassification adjustments related to unrealized gains (losses) on investment securities:
Having no credit losses recognized in the consolidated statement of income (1)	$	42	$	(12)	$	61	$	(50)
Income tax (expense) benefit (2)	9		(2)		13		(10)
Net of taxes	33		(10)		48		(40)

Having credit losses recognized in the consolidated statement of income (1)	—		—		—		—
Income tax benefit (2)	—		—		—		—
Net of taxes	—		—		—		—

Reclassification adjustment related to benefit plan assets and obligations:
Claims and claim adjustment expenses (3)	5		10		13		31
General and administrative expenses (3)	5		16		18		46
Total	10		26		31		77
Income tax benefit (2)	1		5		6		16
Net of taxes	9		21		25		61

Reclassification adjustment related to foreign currency translation (1)	—		—		—		—
Income tax benefit (2)	—		—		—		—
Net of taxes	—		—		—		—

Total reclassifications	52		14		92		27
Total income tax benefit	10		3		19		6
Total reclassifications, net of taxes	$	42	$	11	$	73	$	21

_________________________________________________________

(1)(Increases) decreases net realized investment gains (losses) 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.

9. DEBT

Credit Agreement. On June 15, 2022, 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 4, 2023. 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 fixed during the term of the credit agreement at an amount equal to $13.9 billion (57.5% of the Company's net worth as defined above at March 31, 2022). 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, 2022,

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

9. DEBT, Continued

the Company was in compliance with these covenants. Generally, the cost of borrowing under this agreement will range from the Secured Overnight Financing Rate (SOFR) plus 85 basis points (including a credit spread adjustment) to SOFR plus 147.5 basis points (including a credit spread adjustment), depending on the Company’s credit ratings. At September 30, 2022, that cost would have been SOFR plus 110 basis points (including a credit spread adjustment), had there been any amounts outstanding under the credit agreement.

10. COMMON SHARE REPURCHASES

During the three and nine months ended September 30, 2022, the Company repurchased 3.1 million and 8.9 million common shares, respectively, under its share repurchase authorizations for total cost of $500 million and $1.50 billion, respectively. The average cost per share repurchased was $163.63 and $169.33, respectively. In addition, the Company acquired 4,508 shares and 0.4 million common shares for a total cost of approximately $715,000 and $60 million during the three and nine months ended September 30, 2022, respectively, that were not part of its publicly announced share repurchase authorizations. 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, 2022, the Company had $2.51 billion of capacity remaining under its share repurchase authorizations.

11. EARNINGS PER SHARE

The following is a reconciliation of the 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)	2022		2021		2022		2021

Basic and Diluted
Net income, as reported	$	454	$	662	$	2,023	$	2,329
Participating share-based awards — allocated income	(4)		(5)		(15)		(17)
Net income available to common shareholders — basic and diluted	$	450	$	657	$	2,008	$	2,312

Common Shares
Basic
Weighted average shares outstanding	235.4		247.7		238.3		250.1

Diluted
Weighted average shares outstanding	235.4		247.7		238.3		250.1
Weighted average effects of dilutive securities — stock options and performance shares	2.5		2.4		2.6		2.3
Total	237.9		250.1		240.9		252.4

Net Income per Common Share
Basic	$	1.91	$	2.65	$	8.43	$	9.24
Diluted	$	1.89	$	2.62	$	8.34	$	9.16

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, 2022:


Stock Options	Number	Weighted Average Exercise Price		Weighted Average Contractual Life Remaining	Aggregate Intrinsic Value ($ in millions)
Vested at end of period (1)	7,180,448	$	131.13	6.0 years	$	171
Exercisable at end of period	4,394,999	$	123.21	4.7 years	$	132

_________________________________________________________

(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 $41 million and $37 million for the three months ended September 30, 2022 and 2021, respectively, and $141 million and $126 million for the nine months ended September 30, 2022 and 2021, respectively. The related tax benefits recognized in earnings were $7 million for both the three months ended September 30, 2022 and 2021, and $24 million and $22 million for the nine months ended September 30, 2022 and 2021, respectively.

The total unrecognized compensation cost related to all nonvested share-based incentive compensation awards at September 30, 2022 was $212 million, which is expected to be recognized over a weighted-average period of 1.8 years.

13. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS

The following table summarizes the components of net periodic benefit cost (benefit) for the Company’s pension and postretirement benefit plans recognized in the consolidated statement of income for the three months ended September 30, 2022 and 2021.


	Pension Plans				Postretirement Benefit Plans
(for the three months ended September 30, in millions)	2022		2021		2022		2021

Net Periodic Benefit Cost (Benefit):
Service cost	$	36	$	35	$	—	$	—

Non-service cost (benefit):
Interest cost on benefit obligation	$	25	$	21	$	—	$	1
Expected return on plan assets	(74)		(69)		—		—

Amortization of unrecognized:
Prior service benefit	—		(1)		—		(1)
Net actuarial (gain) loss	12		28		(1)		(1)
Total non-service cost (benefit)	(37)		(21)		(1)		(1)
Net periodic benefit cost (benefit)	$	(1)	$	14	$	(1)	$	(1)

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

13. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS, Continued

The following table indicates the line items in which the respective service cost and non-service cost (benefit) are presented in the consolidated statement of income for the three months ended September 30, 2022 and 2021.


	Pension Plans				Postretirement Benefit Plans
(for the three months ended September 30, in millions)	2022		2021		2022		2021
Service Cost:
Claims and claim adjustment expenses	$	14	$	14	$	—	$	—
General and administrative expenses	22		21		—		—
Total service cost	36		35		—		—

Non-Service Cost (Benefit):
Claims and claim adjustment expenses	(15)		(9)		—		—
General and administrative expenses	(22)		(12)		(1)		(1)
Total non-service cost (benefit)	(37)		(21)		(1)		(1)
Net periodic benefit cost (benefit)	$	(1)	$	14	$	(1)	$	(1)


	Pension Plans				Postretirement Benefit Plans
(for the nine months ended September 30, in millions)	2022		2021		2022		2021
Net Periodic Benefit Cost (Benefit):
Service cost	$	109	$	106	$	—	$	—
Non-service cost (benefit):
Interest cost on benefit obligation	76		62		2		2
Expected return on plan assets	(222)		(206)		—		—

Amortization of unrecognized:
Prior service benefit	—		(1)		(2)		(3)
Net actuarial (gain) loss	37		82		(3)		(2)
Total non-service cost (benefit)	(109)		(63)		(3)		(3)
Net periodic benefit cost (benefit)	$	—	$	43	$	(3)	$	(3)

The following table indicates the line items in which the respective service cost and non-service cost (benefit) are presented in the consolidated statement of income for the nine months ended September 30, 2022 and 2021.


	Pension Plans				Postretirement Benefit Plans
(for the nine months ended September 30, in millions)	2022		2021		2022		2021
Service Cost:
Claims and claim adjustment expenses	$	44	$	43	$	—	$	—
General and administrative expenses	65		63		—		—
Total service cost	109		106		—		—
Non-Service Cost (Benefit):
Claims and claim adjustment expenses	(44)		(26)		(1)		(1)
General and administrative expenses	(65)		(37)		(2)		(2)
Total non-service cost (benefit)	(109)		(63)		(3)		(3)
Net periodic benefit cost (benefit)	$	—	$	43	$	(3)	$	(3)

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

14. LEASES

The Company enters into lease agreements for real estate that is primarily used for office space in the ordinary course of business. These leases are accounted for as operating leases, whereby lease expense is recognized on a straight-line basis over the term of the lease, and a right-of-use asset and lease liability is recognized as part of other assets and other liabilities, respectively, in the consolidated balance sheet.

Most leases include an option to extend or renew the lease term. The exercise of the renewal option is at the Company's discretion. The operating lease liability includes lease payments related to options to extend or renew the lease term if the Company is reasonably certain of exercising those options. The Company, in determining the present value of lease payments, utilizes either the rate implicit in the lease, if that rate is readily determinable, or the Company’s incremental secured borrowing rate commensurate with the term of the underlying lease.

Lease expense is included in general and administrative expenses in the consolidated statement of income. Additional information regarding the Company’s real estate operating leases is as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2022			2021				2022			2021

Lease cost
Operating leases	$	19		$	22			$	61		$	67
Short-term leases (1)	1			—				2			1

Lease expense	20			22				63			68
Less: sublease income (2)	—			—				—			—
Net lease cost	$	20		$	22			$	63		$	68

Other information on operating leases

Cash payments to settle a lease liability reported in cash flows	$	23		$	25			$	71		$	78
Right-of-use assets obtained in exchange for new lease liabilities	$	14		$	2			$	21		$	21
Weighted average discount rate	2.33		%	2.37		%		2.33		%	2.37		%
Weighted average remaining lease term	4.5 years			4.6 years				4.5 years			4.6 years

_________________________________________________________

(1)Leases with a term of twelve months or less are not recorded on the consolidated balance sheet.

(2)Sublease income consists of rent from third parties of office space and is recognized as part of other revenues in the consolidated statement of income.

15. 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.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

15. CONTINGENCIES, COMMITMENTS AND GUARANTEES, Continued

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 future loss development for claims and litigation relating to asbestos and environmental claims. Any such development could be affected by future court decisions and interpretations, as well as future changes, if any, 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, real estate partnerships and others. These commitments totaled $1.88 billion and $1.70 billion at September 30, 2022 and December 31, 2021, respectively.

Guarantees

The maximum amount of the Company’s contingent obligation for indemnifications related to the sale of businesses that are quantifiable was $351 million at September 30, 2022.

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, 2022, all of which is indemnified by a third party. For more information regarding Company guarantees, see note 17 of the notes to the consolidated financial statements in the Company’s 2021 Annual Report.

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

2022 Third Quarter Consolidated Results of Operations

•Net income of $454 million, or $1.91 per share basic and $1.89 per share diluted

•Net earned premiums of $8.62 billion

•Catastrophe losses of $512 million ($404 million after-tax)

•Net favorable prior year reserve development of $20 million ($16 million after-tax)

•Combined ratio of 98.2%

•Net investment income of $593 million ($505 million after-tax)

•Net realized investment losses of $93 million ($72 million after-tax)

•Operating cash flows of $2.48 billion

2022 Third Quarter Consolidated Financial Condition

•Total investments of $78.11 billion; fixed maturities and short-term securities comprised 93% of total investments

•Total assets of $114.32 billion

•Total debt of $7.29 billion, resulting in a debt-to-total capital ratio of 26.8% (21.8% excluding net unrealized investment gains, net of tax)

•Total capital returned to shareholders of $722 million, comprising $501 million of share repurchases and $221 million of dividends

•Shareholders’ equity of $19.91 billion

•Net unrealized investment losses of $8.02 billion ($6.32 billion after-tax)

•Book value per common share of $84.94

•Holding company liquidity of $1.45 billion

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)	2022			2021			2022			2021

Revenues
Premiums	$	8,615		$	7,829		$	24,946		$	22,831
Net investment income	593			771			1,937			2,290
Fee income	104			97			307			302
Net realized investment gains (losses)	(93)			8			(211)			113
Other revenues	84			100			269			269
Total revenues	9,303			8,805			27,248			25,805

Claims and expenses
Claims and claim adjustment expenses	6,088			5,464			16,930			15,479
Amortization of deferred acquisition costs	1,406			1,281			4,081			3,742
General and administrative expenses	1,193			1,187			3,607			3,524
Interest expense	88			87			263			252
Total claims and expenses	8,775			8,019			24,881			22,997
Income before income taxes	528			786			2,367			2,808
Income tax expense	74			124			344			479
Net income	$	454		$	662		$	2,023		$	2,329

Net income per share
Basic	$	1.91		$	2.65		$	8.43		$	9.24
Diluted	$	1.89		$	2.62		$	8.34		$	9.16

Combined ratio
Loss and loss adjustment expense ratio	70.1		%	69.2		%	67.3		%	67.2		%
Underwriting expense ratio	28.1			29.4			28.7			29.6
Combined ratio	98.2		%	98.6		%	96.0		%	96.8		%

The following discussions of the Company’s net income and segment income (loss) are presented on an after-tax basis. Discussions of the components of net income and segment income (loss) 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 $1.89 in the third quarter of 2022 decreased by 28% from diluted net income per share of $2.62 in the same period of 2021. Net income of $454 million in the third quarter of 2022 decreased by 31% from net income of $662 million in the same period of 2021. The lower rate of decrease in diluted net income per share reflected the impact of share repurchases in recent periods. The decrease in income before income taxes in the third quarter of 2022 primarily reflected the pre-tax impacts of (i) lower net investment income, (ii) net realized investment losses compared to net realized investment gains in the third quarter of 2021 and (iii) lower underwriting margins excluding catastrophe losses and prior year reserve development ("underlying underwriting margins"), partially offset by (iv) net favorable prior year reserve development compared to net unfavorable prior year reserve development in the same period of 2021. Catastrophe losses in the third quarters of 2022 and 2021 were $512 million and $501 million, respectively. Net favorable prior year reserve development in the third quarter of 2022 was $20 million. Net unfavorable prior year reserve development in the third quarter of 2021 was $56 million. The lower underlying underwriting margins in the third quarter of 2022 were driven by Personal Insurance, partially offset by Bond & Specialty Insurance and Business Insurance. Underlying underwriting margins in the third quarter of 2021 included a net favorable impact from COVID-19 and related economic conditions. Income tax expense in the third quarter of 2022 was lower than in the same period of 2021, primarily reflecting the impact of the decrease in income before income taxes.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

Diluted net income per share of $8.34 in the first nine months of 2022 decreased by 9% from diluted net income per share of $9.16 in the same period of 2021. Net income of $2.02 billion in the first nine months of 2022 decreased by 13% from net income of $2.33 billion in the same period of 2021. The lower rate of decrease in diluted net income per share reflected the impact of share repurchases in recent periods. The decrease in income before income taxes primarily reflected the pre-tax impacts of (i) lower net investment income, (ii) net realized investment losses compared to net realized investment gains in the same period of 2021 and (iii) lower underlying underwriting margins, partially offset by (iv) lower catastrophe losses. Catastrophe losses in the first nine months of 2022 and 2021 were $1.42 billion and $1.81 billion, respectively. Net favorable prior year reserve development in the first nine months of 2022 and 2021 was $464 million and $443 million, respectively. The lower underlying underwriting margins in the first nine months of 2022 were driven by Personal Insurance, partially offset by Business Insurance and Bond & Specialty Insurance. Underlying underwriting margins in the first nine months of 2021 reflected a net favorable impact from COVID-19 and related economic conditions. Income tax expense in the first nine months of 2022 was lower than in the same period of 2021, primarily reflecting a $47 million reduction in income tax expense in the first quarter of 2022 as a result of the resolution of prior year tax matters and the impact of the decrease in income before income taxes.

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 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 and nine months ended September 30, 2022 and 2021, changes in foreign currency exchange rates impacted reported line items in the statement of income by insignificant amounts. The impact of these changes was not material to the Company’s net income or segment income (loss) for the periods reported.

Revenues

Earned Premiums

Earned premiums in the third quarter of 2022 were $8.62 billion, $786 million or 10% higher than in the same period of 2021. Earned premiums in the first nine months of 2022 were $24.95 billion, $2.12 billion or 9% higher than in the same period of 2021. In Business Insurance, earned premiums in the third quarter and first nine months of 2022 increased by 10% and 9%, respectively, over the same periods of 2021. Earned premiums in Business Insurance in both periods of 2021 were negatively impacted by lower net written premiums in the preceding twelve months due to a modest reduction in exposures and a decrease in new business volume, in each case impacted by COVID-19 and related economic conditions. In Bond & Specialty Insurance, earned premiums in the third quarter and first nine months of 2022 increased by 9% and 10%, respectively, over the same periods of 2021. In Personal Insurance, earned premiums in the third quarter and first nine months of 2022 increased by 11% and 10%, respectively, over the same periods of 2021. Earned premiums in Bond & Specialty Insurance and Personal Insurance in both the third quarter and first nine months of 2021 were not materially impacted by COVID-19 and related economic conditions. Factors contributing to the changes in earned premiums in each segment are discussed in more detail in the segment discussions that follow.

Net Investment Income

The following table sets forth information regarding the Company’s investments.


	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in millions)	2022			2021			2022			2021
Average investments (1)	$	87,315		$	84,647		$	86,818		$	82,854
Pre-tax net investment income	593			771			1,937			2,290
After-tax net investment income	505			645			1,639			1,917
Average pre-tax yield (2)	2.7		%	3.6		%	3.0		%	3.7		%
Average after-tax yield (2)	2.3		%	3.0		%	2.5		%	3.1		%

_________________________________________________________

(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 2022 was $593 million, $178 million or 23% lower than in the same period of 2021. Net investment income in the first nine months of 2022 was $1.94 billion, $353 million or 15% lower than in the same period of 2021. Net investment income from fixed maturity investments in the third quarter and first nine months of 2022 was

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

$534 million and $1.55 billion, respectively, $37 million and $70 million higher, respectively, than in the same periods of 2021. The increase in the third quarter of 2022 primarily resulted from a higher average level of fixed maturity investments and higher long-term average yields. The increase in the first nine months of 2022 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 2022 was $23 million and $34 million, respectively, $21 million and $28 million higher, respectively, than in the same periods of 2021. The increases in both periods of 2022 primarily resulted from higher short-term average yields, partially offset by a lower level of short-term investments. The Company's remaining investment portfolios had net investment income of $46 million and $385 million in the third quarter and first nine months of 2022, respectively, $235 million and $449 million lower, respectively, than in the same periods of 2021. The decline in net investment income from these portfolios in the third quarter and first nine months of 2022 compared with the same periods of 2021 primarily reflected the impact of lower returns from private equity partnerships as compared to very strong returns in the same periods of 2021. Included in other investments are private equity, hedge fund and real estate partnerships that are accounted for under the equity method of accounting and typically report their financial statement information to the Company one month to three months following the end of the reporting period. Accordingly, net investment income from these other investments is generally reflected in the Company's financial statements on a quarter lag basis.

Fee Income

Fee income in the third quarter of 2022 was $104 million, $7 million higher than in the same period of 2021. Fee income in the first nine months of 2022 was $307 million, $5 million higher than in the same period of 2021. The National Accounts market in Business Insurance is the primary source of the Company’s fee-based business and is discussed in the Business Insurance segment discussion that follows.

Net Realized Investment Gains (Losses)

The following table sets forth information regarding the Company’s net realized investment gains (losses).


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2022		2021		2022		2021
Impairment gains (losses):
Fixed maturities	$	(5)	$	(1)	$	(26)	$	(1)
Real estate investments	(9)		—		(9)		—
Net realized investment gains (losses) on equity securities still held	(25)		(6)		(110)		45
Other net realized investment gains (losses), including from sales	(54)		15		(66)		69
Total	$	(93)	$	8	$	(211)	$	113

Net realized investment losses on equity securities still held of $25 million and $110 million in the third quarter and first nine months of 2022, respectively, were driven by the impact of changes in fair value attributable to unfavorable equity markets. Net realized investment gains (losses) on equity securities still held were $(6) million and $45 million in the third quarter and first nine months of 2021, respectively. Net realized investment gains in the first nine months of 2021 were driven by the impact of changes in fair value attributable to favorable equity markets.

Other Revenues

Other revenues in the third quarter of 2022 were $84 million, $16 million lower than in the same period of 2021. Other revenues in the first nine months of 2022 of $269 million were comparable with the same period of 2021. Other revenues include revenues from Simply Business, installment premium charges and other policyholder service charges.

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 2022 were $6.09 billion, $624 million or 11% higher than in the same period of 2021, primarily reflecting the impacts of (i) higher business volumes and (ii) loss cost trends, including elevated severity in both the automobile and homeowners and other product lines in Personal Insurance, partially offset by (iii) net favorable prior year reserve development compared to net unfavorable prior year reserve development in the same period of 2021, (iv) lower non-catastrophe property losses in the prior year quarter in Business Insurance and (v) the favorable re-estimation of losses incurred for management liability coverages in the first six months of 2022 in Bond & Specialty Insurance. Catastrophe losses in the third quarter of 2022 primarily resulted from Hurricanes Ian and Fiona, as well as severe storms in several regions of the United States. Catastrophe losses in the third quarter of 2021 primarily resulted from Hurricane Ida and severe storms in several regions of the United States. The impacts of COVID-19 and related economic conditions on claims and claim adjustment expenses in the third quarter of 2021 are discussed in more detail in the segment discussions that follow. Catastrophe losses and non-catastrophe weather-related losses in the third quarter of 2021 were reduced by recoveries under the Company's 2021 Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance Treaty.

Claims and claim adjustment expenses in the first nine months of 2022 were $16.93 billion, $1.45 billion or 9% higher than in the same period of 2021, primarily reflecting the impacts of (i) higher business volumes, (ii) loss cost trends, including elevated severity in the current year in both the automobile and homeowners and other product lines in Personal Insurance, (iii) higher non-catastrophe property losses in Business Insurance and (iv) a comparison to a low level of loss activity in the prior year period in the automobile product line in Personal Insurance, partially offset by (v) lower catastrophe losses. Catastrophe losses in the first nine months of 2022 included the third quarter events described above, as well as severe wind and hail storms in several regions of the United States in the first six months of 2022. Catastrophe losses in the first nine months of 2021 included the third quarter events described above, as well as winter storms and severe wind and hail storms in several regions of the United States in the first six months of 2021. The impacts of COVID-19 and related economic conditions on claims and claim adjustment expenses in the first nine months of 2021 are discussed in more detail in the segment discussions that follow. Catastrophe losses and non-catastrophe weather-related losses in the first nine months of 2021 were reduced by recoveries under the Company's 2021 Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance Treaty.

Factors contributing to net prior year reserve development during the third quarters and first nine months of 2022 and 2021 are discussed in more detail in note 7 of the notes to the unaudited consolidated financial statements.

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, 2022 and 2021, the amount of net unfavorable (favorable) prior year reserve development recognized in the three months and nine months ended September 30, 2022 and 2021 for significant catastrophes that occurred in 2021 and 2020, and the estimate of ultimate losses for those catastrophes at September 30, 2022 and December 31, 2021. For purposes of the table, a significant catastrophe is an event for which the Company estimates its ultimate losses will be $100 million or more after reinsurance and before taxes. The Company's threshold for disclosing catastrophes is primarily determined at the reportable segment level and for 2022 ranged from $20 million to $30 million of losses before reinsurance and taxes. For the Company’s definition of a catastrophe, refer to “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations— Consolidated Overview” in the Company’s 2021 Annual Report.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


	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) (1)	2022	2021	2022	2021	September 30, 2022	December 31, 2021
			'
























2020
PCS Serial Number:
16 — Tennessee tornado activity	(1)	(7)	2	(10)	144	142
19 — Severe storms	(1)	(4)	(5)	(15)	120	125
20 — Severe storms	1	(6)	3	(20)	143	140
33 — Civil unrest	—	1	(5)	(1)	88	93
44 — Tropical Storm Isaias	—	(7)	—	(21)	118	118
46 — Midwest derecho	—	2	(3)	(8)	199	202
68 — California wildfire - Glass fire	(3)	(1)	(3)	(9)	133	136

2021
PCS Serial Number:
15 — Winter storms	(5)	1	(10)	214	218	228
17 — Winter storms	(4)	13	(9)	508	499	508
29 — Severe wind storms	(6)	(28)	(12)	123	93	105
60 — Hurricane Ida	(36)	425	(78)	425	339	417
76 — Tornado outbreak	(1)	n/a	(13)	n/a	118	131

2022
PCS Serial Number:
33 — Severe wind and hail storms	9	n/a	117	n/a	117	n/a
35 — Severe wind and hail storms	40	n/a	144	n/a	144	n/a
43 — Severe wind and hail storms	(7)	n/a	124	n/a	124	n/a
61 — Hurricane Ian (2)	326	n/a	326	n/a	326	n/a

_________________________________________________________

(1) Amounts are reported pre-tax and net of recoveries under all applicable reinsurance treaties, except for the Company's 2022, 2021 and 2020 Underlying Property Aggregate Catastrophe Excess-of-Loss Treaties, the terms of which are described in "Part I—Item 1—Business" in the Company's 2021 Annual Report. Those treaties covered the accumulation of certain property losses arising from one or multiple occurrences (both catastrophe and non-catastrophe events) for the period January 1, 2022 through and including December 31, 2022, the period January 1, 2021 through and including December 31, 2021 and the period January 1, 2020 through and including December 31, 2020, respectively. As a result, the benefits from those treaties are not included in the table above as the allocation of the treaty's benefit to each identified catastrophe changes each time there are additional events or changes in estimated losses from any covered event.

(2) PCS designated Hurricane Ian as a catastrophe currently covering the designated period from September 27, 2022 through October 1, 2022 in the states of Florida, Georgia, North Carolina, South Carolina and Virginia. The designated time period and affected states are subject to update by PCS. The amount of Losses Incurred and Estimated Ultimate Losses in the above table include only those losses incurred through September 30, 2022, the date of the financial statements.

n/a: not applicable.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

Amortization of Deferred Acquisition Costs

Amortization of deferred acquisition costs in the third quarter of 2022 was $1.41 billion, $125 million or 10% higher than in the same period of 2021. Amortization of deferred acquisition costs in the first nine months of 2022 was $4.08 billion, $339 million or 9% higher than in the same period of 2021. The increases in both periods of 2022 were generally consistent with the increases in earned premiums. Amortization of deferred acquisition costs is discussed in more detail in the segment discussions that follow.

General and Administrative Expenses

General and administrative expenses in the third quarter of 2022 were $1.19 billion, $6 million or 1% higher than in the same period of 2021. General and administrative expenses in the first nine months of 2022 were $3.61 billion, $83 million or 2% higher than in the same period of 2021. The increases in both periods of 2022 primarily reflected the impact of 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 2022 was $88 million and $263 million, respectively, compared with $87 million and $252 million, respectively, in the same periods of 2021.

Income Tax Expense

Income tax expense in the third quarter of 2022 was $74 million, $50 million or 40% lower than in the same period of 2021, primarily reflecting the impact of the $258 million decrease in income before income taxes in the third quarter of 2022. Income tax expense in the first nine months of 2022 was $344 million, $135 million or 28% lower than in the same period of 2021, primarily reflecting the impact of the $441 million decrease in income before income taxes in the first nine months of 2022 and the $47 million reduction in income tax expense in the first quarter of 2022 as a result of the resolution of prior year tax matters.

The Company’s effective tax rate was 14% and 16% in the third quarters of 2022 and 2021, respectively. The Company's effective tax rate was 15% and 17% in the first nine months of 2022 and 2021, respectively. The effective tax rates were lower than the statutory rate of 21% in all periods, primarily due to the impact of tax-exempt investment income on the calculation of the Company’s income tax provision. In addition, the effective tax rate for the first nine months of 2022 was reduced by the impact of the resolution of prior year tax matters discussed above.

Combined Ratio

The combined ratio of 98.2% in the third quarter of 2022 was 0.4 points lower than the combined ratio of 98.6% in the same period of 2021. The loss and loss adjustment expense ratio of 70.1% in the third quarter of 2022 was 0.9 points higher than the loss and loss adjustment expense ratio of 69.2% in the same period of 2021. The underwriting expense ratio of 28.1% for the third quarter of 2022 was 1.3 points lower than the underwriting expense ratio of 29.4% in the same period of 2021.

Catastrophe losses in the third quarters of 2022 and 2021 accounted for 5.9 points and 6.4 points, respectively, of the combined ratio. Net favorable prior year reserve development in the third quarter of 2022 provided 0.2 points of benefit to the combined ratio. Net unfavorable prior year reserve development in the third quarter of 2021 accounted for 0.8 points of the combined ratio. The combined ratio excluding prior year reserve development and catastrophe losses (“underlying combined ratio”) in the third quarter of 2022 was 1.1 points higher than the 2021 ratio on the same basis, primarily reflecting the impacts of (i) elevated severity in both the automobile and homeowners and other product lines in Personal Insurance and (ii) a lower level of property losses in the prior year quarter in Business Insurance and (iii) a favorable impact associated with the pandemic in the prior year quarter, partially offset by (iv) the benefit of earned pricing in Business Insurance and Bond & Specialty Insurance, (v) the favorable re-estimation of losses incurred for management liability coverages in the first six months of 2022 in Bond & Specialty Insurance and (vi) a lower expense ratio.

The combined ratio of 96.0% in the first nine months of 2022 was 0.8 points lower than the combined ratio of 96.8% in the same period of 2021. The loss and loss adjustment expense ratio of 67.3% for the first nine months of 2022 was 0.1 points higher than the loss and loss adjustment expense ratio of 67.2% in the same period of 2021. The underwriting expense ratio of 28.7% for the first nine months of 2022 was 0.9 points lower than the underwriting expense ratio of 29.6% in the same period of 2021.

Catastrophe losses in the first nine months of 2022 and 2021 accounted for 5.7 points and 7.9 points, respectively, of the combined ratio. Net favorable prior year reserve development in the first nine months of 2022 and 2021 each provided 1.9

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

points of benefit to the combined ratio. The underlying combined ratio in the first nine months of 2022 was 1.4 points higher than the 2021 ratio on the same basis, primarily reflecting the impacts of (i) elevated severity in the current year in both the automobile and homeowners and other product lines in Personal Insurance, (ii) a comparison to a low level of loss activity in the prior year period in the automobile product line in Personal Insurance and (iii) higher property losses in Business Insurance, partially offset by (iv) the benefit of earned pricing in Business Insurance and Bond & Specialty Insurance and (v) a lower expense ratio.

The combined ratio continues to be impacted by the tort environment, including more aggressive attorney involvement in insurance claims.

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)	2022		2021		2022		2021
Business Insurance	$	4,864	$	4,453	$	14,798	$	13,585
Bond & Specialty Insurance	1,043		984		3,088		2,737
Personal Insurance	3,905		3,439		10,745		9,558
Total	$	9,812	$	8,876	$	28,631	$	25,880


	Net Written Premiums
	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2022		2021		2022		2021
Business Insurance	$	4,370	$	4,021	$	13,245	$	12,126
Bond & Specialty Insurance	964		894		2,808		2,471
Personal Insurance	3,864		3,409		10,532		9,367
Total	$	9,198	$	8,324	$	26,585	$	23,964

Gross and net written premiums in the third quarter of 2022 increased by 11% and 10%, respectively, over the same period of 2021. Gross and net written premiums in the first nine months of 2022 both increased by 11% over the same period of 2021. Factors contributing to the changes in gross and net written premiums in each segment are discussed in more detail in the segment discussions that follow.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

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)	2022			2021			2022			2021

Revenues
Earned premiums	$	4,353		$	3,970		$	12,642		$	11,649
Net investment income	426			575			1,415			1,713
Fee income	96			90			285			282
Other revenues	56			69			194			179
Total revenues	4,931			4,704			14,536			13,823

Total claims and expenses	4,371			4,040			12,353			12,007

Segment income before income taxes	560			664			2,183			1,816
Income tax expense	89			106			377			298
Segment income	$	471		$	558		$	1,806		$	1,518

Loss and loss adjustment expense ratio	66.9		%	67.0		%	63.6		%	67.8		%
Underwriting expense ratio	29.4			30.5			29.9			30.9
Combined ratio	96.3		%	97.5		%	93.5		%	98.7		%

Overview

Segment income in the third quarter of 2022 was $471 million, $87 million or 16% lower than segment income of $558 million in the same period of 2021. The decrease in segment income before income taxes primarily reflected the pre-tax impacts of (i) lower net investment income and (ii) higher catastrophe losses, partially offset by (iii) higher underlying underwriting margins and (iv) lower net unfavorable prior year reserve development. Catastrophe losses in the third quarters of 2022 and 2021 were $216 million and $181 million, respectively. Net unfavorable prior year reserve development in the third quarters of 2022 and 2021 was $61 million and $108 million, respectively. The higher underlying underwriting margins primarily reflected the impacts of (i) higher business volumes and (ii) the benefit of earned pricing, partially offset by (iii) a low level of property losses in the prior year quarter and (iv) the favorable impact associated with the pandemic in the prior year quarter. Income tax expense in the third quarter of 2022 was lower than in the same period of 2021, primarily reflecting the impact of the decrease in segment income before income taxes.

Segment income in the first nine months of 2022 was $1.81 billion, $288 million or 19% higher than segment income of $1.52 billion in the same period of 2021. The increase in segment income before income taxes primarily reflected the pre-tax impacts of (i) lower catastrophe losses, (ii) higher underlying underwriting margins and (iii) higher net favorable prior year reserve development, partially offset by (iv) lower net investment income. Catastrophe losses in the first nine months of 2022 and 2021 were $529 million and $836 million, respectively. Net favorable prior year reserve development in the first nine months of 2022 and 2021 was $254 million and $99 million, respectively. The higher underlying underwriting margins primarily reflected the impacts of (i) higher business volumes and (ii) the benefit of earned pricing, partially offset by (iii) higher property losses. Income tax expense in the first nine months of 2022 was higher than in the same period of 2021, primarily reflecting the impact of the increase in income before income taxes.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

Revenues

Earned Premiums

Earned premiums in the third quarter of 2022 were $4.35 billion, $383 million or 10% higher than in the same period of 2021. Earned premiums in the first nine months of 2022 were $12.64 billion, $993 million or 9% higher than in the same period of 2021. The increases in both periods of 2022 primarily reflected the increase in net written premiums over the preceding twelve months. Earned premiums in both periods of 2021 were negatively impacted by lower net written premiums in the preceding twelve months due to a modest reduction in exposures and a decrease in new business volume, in each case driven by the impact of COVID-19 and related economic conditions.

Net Investment Income

Net investment income in the third quarter of 2022 was $426 million, $149 million or 26% lower than in the same period of 2021. Net investment income in the first nine months of 2022 was $1.42 billion, $298 million or 17% lower than in the same period of 2021. Refer to the “Revenues—Net Investment Income” section of the “Consolidated Results of Operations” discussion herein for a description of the factors contributing to the decreases in the Company’s consolidated net investment income in the third quarter and first nine months of 2022 compared with the same periods of 2021. In addition, refer to note 2 of the notes to the consolidated financial statements in the Company’s 2021 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 revenue from its large deductible policies and service businesses, which include risk management, claims administration, loss control and risk management information services provided to third parties, as well as policy issuance and claims management services to workers' compensation residual market pools. Fee income in the third quarter of 2022 was $96 million, $6 million or 7% higher than in the same period of 2021. Fee income in the first nine months of 2022 was $285 million, $3 million or 1% higher than in the same period of 2021. The increases in both periods of 2022 primarily reflected higher serviced premium volume from the workers' compensation residual market pool. Fee income in the first nine months of 2022 was also impacted by lower claim volume under administration associated with large deductible policies.

Other Revenues

Other revenues in the third quarter of 2022 were $56 million, $13 million lower than in the same period of 2021. Other revenues in the first nine months of 2022 were $194 million, $15 million higher than in the same period of 2021. The increase in the first nine months of 2022 primarily reflected the receipt of a surplus distribution from a state workers’ compensation reinsurance fund. Other revenues also included revenues from Simply Business, installment premium charges and other policyholder service charges.

Claims and Expenses

Claims and Claim Adjustment Expenses

Claims and claim adjustment expenses in the third quarter of 2022 were $2.96 billion, $256 million or 9% higher than in the same period of 2021, primarily reflecting the impacts of (i) higher business volumes, (ii) loss cost trends, (iii) a low level of non-catastrophe property losses in the prior year quarter and (iv) higher catastrophe losses, partially offset by (v) lower net unfavorable prior year reserve development. Claims and claim adjustment expenses in the third quarter of 2021 included favorable loss activity related to the impact of COVID-19 and related economic conditions. Catastrophe losses and non-catastrophe weather-related losses in the third quarter of 2021 were reduced by recoveries under the Company's 2021 Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance Treaty.

Claims and claim adjustment expenses in the first nine months of 2022 were $8.17 billion, $141 million or 2% higher than in the same period of 2021, primarily reflecting the impacts of (i) higher non-catastrophe property losses, (ii) loss cost trends and (iii) higher business volumes, partially offset by (iv) lower catastrophe losses and (v) higher net favorable prior year reserve development. Claims and claim adjustment expenses in the first nine months of 2021 included favorable loss activity related to the impact of COVID-19 and related economic conditions. Catastrophe losses and non-catastrophe weather-related losses in the first nine months of 2021 were reduced by recoveries under the Company's 2021 Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance Treaty.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

Amortization of Deferred Acquisition Costs

Amortization of deferred acquisition costs in the third quarter of 2022 was $708 million, $55 million or 8% higher than the same period of 2021. Amortization of deferred acquisition costs in the first nine months of 2022 was $2.07 billion, $145 million or 8% higher than the same period of 2021. The increases in both periods of 2022 were generally consistent with the increases in earned premiums.

General and Administrative Expenses

General and administrative expenses in the third quarter of 2022 were $704 million, $20 million or 3% higher than in the same period of 2021. General and administrative expenses in the first nine months of 2022 were $2.12 billion, $60 million or 3% higher than in the same period of 2021. The increases in both periods of 2022 were primarily in support of business growth. General and administrative expenses in the third quarter and first nine months of 2021 included the benefit of lower travel-related expenses attributable to the impact of COVID-19 and related economic conditions.

Income Tax Expense

Income tax expense in the third quarter of 2022 was $89 million, $17 million lower than the same period of 2021, primarily reflecting the impact of the $104 million decrease in income before income taxes. Income tax expense in the first nine months of 2022 was $377 million, $79 million higher than in the same period of 2021, primarily reflecting the impact of the $367 million increase in income before income taxes. Income tax expense in the first nine months of 2022 was reduced by $3 million as a result of the resolution of prior year tax matters.

Combined Ratio

The combined ratio of 96.3% in the third quarter of 2022 was 1.2 points lower than the combined ratio of 97.5% in the same period of 2021. The loss and loss adjustment expense ratio of 66.9% in the third quarter of 2022 was 0.1 points lower than the loss and loss adjustment expense ratio of 67.0% in the same period of 2021. The underwriting expense ratio of 29.4% for the third quarter of 2022 was 1.1 points lower than the underwriting expense ratio of 30.5% in the same period of 2021.

Catastrophe losses in the third quarters of 2022 and 2021 accounted for 4.9 points and 4.6 points, respectively, of the combined ratio. Net unfavorable prior year reserve development in the third quarters of 2022 and 2021 accounted for 1.4 points and 2.7 points, respectively, of the combined ratio. The underlying combined ratio in the third quarter of 2022 was 0.2 points lower than the 2021 ratio on the same basis, primarily reflecting the impacts of (i) a lower expense ratio and (ii) the benefit of earned pricing, largely offset by (iii) a low level of property losses in the prior year quarter and (iv) the favorable impact associated with the pandemic in the prior year quarter.

The combined ratio of 93.5% in the first nine months of 2022 was 5.2 points lower than the combined ratio of 98.7% in the same period of 2021. The loss and loss adjustment expense ratio of 63.6% in the first nine months of 2022 was 4.2 points lower than the loss and loss adjustment expense ratio of 67.8% in the same period of 2021. The underwriting expense ratio of 29.9% for the first nine months of 2022 was 1.0 points lower than the underwriting expense ratio of 30.9% in the same period of 2021.

Catastrophe losses in the first nine months of 2022 and 2021 accounted for 4.1 points and 7.2 points, respectively, of the combined ratio. Net favorable prior year reserve development in the first nine months of 2022 and 2021 provided 2.0 points and 0.9 points of benefit, respectively, to the combined ratio. The underlying combined ratio in the first nine months of 2022 was 1.0 points lower than the 2021 ratio on the same basis, primarily reflecting the impacts of (i) a lower expense ratio and (ii) the benefit of earned pricing, partially offset by (iii) higher property losses.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

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)	2022		2021		2022		2021
Domestic:
Select Accounts	$	744	$	688	$	2,391	$	2,166
Middle Market	2,638		2,400		7,939		7,208
National Accounts	357		321		1,201		1,132
National Property and Other	884		794		2,291		2,107
Total Domestic	4,623		4,203		13,822		12,613
International	241		250		976		972
Total Business Insurance	$	4,864	$	4,453	$	14,798	$	13,585


	Net Written Premiums
	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2022		2021		2022		2021
Domestic:
Select Accounts	$	739	$	685	$	2,365	$	2,140
Middle Market	2,465		2,252		7,410		6,723
National Accounts	247		228		790		731
National Property and Other	702		638		1,889		1,730
Total Domestic	4,153		3,803		12,454		11,324
International	217		218		791		802
Total Business Insurance	$	4,370	$	4,021	$	13,245	$	12,126

Gross and net written premiums in the third quarter of 2022 both increased by 9% over the same period of 2021. Gross and net written premiums in the first nine months of 2022 both increased by 9% over the same period of 2021.

Select Accounts. Net written premiums of $739 million and $2.37 billion in the third quarter and first nine months of 2022, respectively, increased by 8% and 11%, respectively, over the same periods of 2021. Retention rates remained strong in the third quarter and first nine months of 2022 and increased over the same periods of 2021. Renewal premium changes in the third quarter and first nine months of 2022 remained positive and were lower than in the same periods of 2021. New business premiums in the third quarter and first nine months of 2022 increased over the same periods of 2021.

Middle Market. Net written premiums of $2.47 billion and $7.41 billion in the third quarter and first nine months of 2022, respectively, increased by 9% and 10%, respectively, over the same periods of 2021. Retention rates remained strong in the third quarter and first nine months of 2022 and increased over the same periods of 2021. Renewal premium changes in the third quarter of 2022 remained positive and were slightly higher than the same period of 2021. Renewal premium changes in the first nine months of 2022 remained positive and were lower than the same period of 2021. New business premiums in the third quarter and first nine months of 2022 increased over the same periods of 2021.

National Accounts. Net written premiums of $247 million and $790 million in the third quarter and first nine months of 2022, respectively, both increased by 8% over the same periods of 2021. Retention rates remained strong in the third quarter of 2022 but were slightly lower than the same period of 2021. Retention rates remained strong in the first nine months of 2022 and increased over the same period of 2021. Renewal premium changes in the third quarter and first nine months of 2022 remained positive and were higher than in the same periods of 2021. New business premiums in the third quarter and first nine months of 2022 increased over the same periods of 2021.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

National Property and Other. Net written premiums of $702 million and $1.89 billion in the third quarter and first nine months of 2022, respectively, increased by 10% and 9%, respectively, over the same periods of 2021. Retention rates remained strong in the third quarter of 2022 and increased slightly over the same period of 2021. Retention rates remained strong in the first nine months of 2022 and increased over the same period of 2021. Renewal premium changes in the third quarter of 2022 remained positive and were higher than in the same period of 2021. Renewal premium changes in the first nine months of 2022 remained positive and were slightly lower than in the same period of 2021. New business premiums in the third quarter and first nine months of 2022 increased over the same periods of 2021.

International. Net written premiums of $217 million in the third quarter of 2022 were comparable with the same period of 2021. Net written premiums of $791 million in the first nine months of 2022 decreased by 1% from the same period of 2021, primarily driven by 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)	2022			2021			2022			2021

Revenues
Earned premiums	$	877		$	806		$	2,548		$	2,325
Net investment income	65			63			188			186
Other revenues	6			5			14			17
Total revenues	948			874			2,750			2,528

Total claims and expenses	644			657			1,922			1,907

Segment income before income taxes	304			217			828			621
Income tax expense	62			43			141			123
Segment income	$	242		$	174		$	687		$	498

Loss and loss adjustment expense ratio	37.3		%	46.3		%	39.5		%	46.2		%
Underwriting expense ratio	35.2			34.8			35.3			35.2
Combined ratio	72.5		%	81.1		%	74.8		%	81.4		%

Overview

Segment income in the third quarter of 2022 was $242 million, $68 million or 39% higher than segment income of $174 million in the same period of 2021. The increase in segment income before income taxes primarily reflected the pre-tax impacts of (i) higher underlying underwriting margins and (ii) higher net favorable prior year reserve development. Net favorable prior year reserve development in the third quarters of 2022 and 2021 was $63 million and $22 million, respectively. Catastrophe losses in the third quarters of 2022 and 2021 were $11 million and $3 million, respectively. The higher underlying underwriting margins primarily reflected the impacts of (i) higher business volumes, (ii) the benefit of earned pricing and (iii) the favorable re-estimation of losses incurred for management liability coverages in the first six months of 2022, partially offset by (iv) higher general and administrative expenses. Income tax expense in the third quarter of 2022 was higher than in the same period of 2021, primarily reflecting the impact of the increase in segment income before income taxes.

Segment income in the first nine months of 2022 was $687 million, $189 million or 38% higher than segment income of $498 million in the same period of 2021. The increase in segment income before income taxes primarily reflected the pre-tax impacts of (i) higher underlying underwriting margins and (ii) higher net favorable prior year reserve development. Net favorable prior year reserve development in the first nine months of 2022 and 2021 was $171 million and $81 million, respectively. Catastrophe losses in the first nine months of 2022 and 2021 were $16 million and $30 million, respectively. The higher underlying underwriting margins primarily reflected the impacts of (i) higher business volumes and (ii) the benefit of earned pricing, partially offset by (iii) higher general and administrative expenses. Income tax expense in the first nine months of 2022 was higher than in the same period of 2021, primarily reflecting the impact of the increase in segment income before income taxes, partially offset by a $24 million reduction in income tax expense in the first quarter of 2022 as a result of the resolution of prior year tax matters.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

Revenues

Earned Premiums

Earned premiums in the third quarter of 2022 were $877 million, $71 million or 9% higher than in the same period of 2021. Earned premiums in the first nine months of 2022 were $2.55 billion, $223 million or 10% higher than in the same period of 2021. The increases in both periods of 2022 primarily reflected the increase in net written premiums over the preceding twelve months.

Net Investment Income

Net investment income in the third quarter of 2022 was $65 million, $2 million or 3% higher than in the same period of 2021. Net investment income in the first nine months of 2022 was $188 million, $2 million or 1% higher than in the same period of 2021. 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 “Revenues—Net Investment Income” section of “Consolidated Results of Operations” herein for a discussion of the decreases in the Company’s consolidated net investment income in the third quarter and first nine months of 2022 compared with the same periods of 2021. In addition, refer to note 2 of the notes to the consolidated financial statements in the Company’s 2021 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 2022 were $334 million, $41 million or 11% lower than in the same period of 2021, primarily reflecting the impacts of (i) higher net favorable prior year reserve development and (ii) the favorable re-estimation of losses incurred for management liability coverages in the first six months of 2022, partially offset by (iii) higher business volumes.

Claims and claim adjustment expenses in the first nine months of 2022 were $1.02 billion, $65 million or 6% lower than in the same period of 2021, primarily reflecting the impact of (i) higher net favorable prior year reserve development and (ii) lower catastrophe losses, partially offset by (iii) higher business volumes.

Factors contributing to net favorable prior year reserve development during the third quarters and first nine months of 2022 and 2021 are discussed in more detail in note 7 of the notes to the unaudited consolidated financial statements.

Amortization of Deferred Acquisition Costs

Amortization of deferred acquisition costs in the third quarter of 2022 was $162 million, $15 million or 10% higher than in the same period of 2021. Amortization of deferred acquisition costs in the first nine months of 2022 was $466 million, $43 million or 10% higher than in the same period of 2021. The increases in both periods of 2022 were generally consistent with the increases in earned premiums.

General and Administrative Expenses

General and administrative expenses in the third quarter of 2022 were $148 million, $13 million or 10% higher than in the same period of 2021. General and administrative expenses in the first nine months of 2022 were $437 million, $37 million or 9% higher than in the same period of 2021. The increases in both periods of 2022 primarily reflected the impacts of higher business volumes.

Income Tax Expense

Income tax expense in the third quarter of 2022 was $62 million, $19 million or 44% higher than in the same period of 2021, primarily reflecting the impact of the $87 million increase in segment income before income taxes. Income tax expense in the first nine months of 2022 was $141 million, $18 million or 15% higher than in the same period of 2021, primarily reflecting the impact of the $207 million increase in segment income before income taxes, partially offset by the $24 million reduction in income tax expense in the first quarter of 2022 as a result of the resolution of prior year tax matters.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

Combined Ratio

The combined ratio of 72.5% in the third quarter of 2022 was 8.6 points lower than the combined ratio of 81.1% in the same period of 2021. The loss and loss adjustment expense ratio of 37.3% in the third quarter of 2022 was 9.0 points lower than the loss and loss adjustment expense ratio of 46.3% in the same period of 2021. The underwriting expense ratio of 35.2% in the third quarter of 2022 was 0.4 points higher than the underwriting expense ratio of 34.8% in the same period of 2021.

Net favorable prior year reserve development in the third quarters of 2022 and 2021 provided 7.2 points and 2.6 points of benefit, respectively, to the combined ratio. Catastrophe losses in the third quarters of 2022 and 2021 accounted for 1.3 points and 0.3 points, respectively, of the combined ratio. The underlying combined ratio in the third quarter of 2022 was 5.0 points lower than the 2021 ratio on the same basis, primarily reflecting (i) the benefit of earned pricing and (ii) the favorable re-estimation of losses incurred for management liability coverages in the first six months of 2022.

The combined ratio of 74.8% in the first nine months of 2022 was 6.6 points lower than the combined ratio of 81.4% in the same period of 2021. The loss and loss adjustment expense ratio of 39.5% in the first nine months of 2022 was 6.7 points lower than the loss and loss adjustment expense ratio of 46.2% in the same period of 2021. The underwriting expense ratio of 35.3% in the first nine months of 2022 was 0.1 points higher than the underwriting expense ratio of 35.2% in the same period of 2021.

Net favorable prior year reserve development in the first nine months of 2022 and 2021 provided 6.7 points and 3.5 points of benefit, respectively, to the combined ratio. Catastrophe losses in the first nine months of 2022 and 2021 accounted for 0.6 points and 1.3 points, respectively, of the combined ratio. The underlying combined ratio in the first nine months of 2022 was 2.7 points lower than the 2021 ratio on the same basis, primarily reflecting the benefit of earned pricing.

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)	2022		2021		2022		2021

Domestic:
Management Liability	$	620	$	608	$	1,783	$	1,663
Surety	295		252		889		726
Total Domestic	915		860		2,672		2,389
International	128		124		416		348
Total Bond & Specialty Insurance	$	1,043	$	984	$	3,088	$	2,737


	Net Written Premiums
	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2022		2021		2022		2021

Domestic:
Management Liability	$	554	$	532	$	1,592	$	1,473
Surety	284		241		828		673
Total Domestic	838		773		2,420		2,146
International	126		121		388		325
Total Bond & Specialty Insurance	$	964	$	894	$	2,808	$	2,471

Gross and net written premiums in the third quarter of 2022 increased by 6% and 8%, respectively, over the same period of 2021. Gross and net written premiums in the first nine months of 2022 increased by 13% and 14%, respectively, over the same period of 2021.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

Domestic. Net written premiums of $838 million and $2.42 billion in the third quarter and first nine months of 2022, respectively, increased by 8% and 13%, respectively, over the same periods of 2021. Excluding the surety line of business, for which the following are not relevant measures, retention rates remained strong in the third quarter and first nine months of 2022 and increased over the same periods of 2021. Renewal premium changes in the third quarter and first nine months of 2022 remained positive and were lower than in the same periods of 2021. New business premiums in the third quarter and first nine months of 2022 increased over the same periods of 2021.

International. Net written premiums of $126 million and $388 million in the third quarter and first nine months of 2022, respectively, increased by 4% and 19%, respectively, over the same periods of 2021. The increases in both periods of 2022 were primarily driven by increases in the United Kingdom and broader Europe, as well as Canada, partially offset by 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)	2022			2021			2022			2021

Revenues
Earned premiums	$	3,385		$	3,053		$	9,756		$	8,857
Net investment income	102			133			334			391
Fee income	8			7			22			20
Other revenues	22			26			61			73
Total revenues	3,517			3,219			10,173			9,341

Total claims and expenses	3,664			3,227			10,318			8,809

Segment income (loss) before income taxes	(147)			(8)			(145)			532
Income tax expense (benefit)	(36)			(6)			(66)			99
Segment income (loss)	$	(111)		$	(2)		$	(79)		$	433

Loss and loss adjustment expense ratio	82.6		%	78.2		%	79.3		%	71.8		%
Underwriting expense ratio	24.6			26.4			25.4			26.5
Combined ratio	107.2		%	104.6		%	104.7		%	98.3		%

Overview

Segment loss in the third quarter of 2022 was $111 million, compared with a segment loss of $2 million in the same period of 2021. The increase in segment loss before income taxes primarily reflected the pre-tax impacts of (i) lower underlying underwriting margins and (ii) lower net investment income, partially offset by (iii) lower catastrophe losses. Catastrophe losses in the third quarters of 2022 and 2021 were $285 million and $317 million, respectively. Net favorable prior year reserve development in the third quarters of 2022 and 2021 was $18 million and $30 million, respectively. The lower underlying underwriting margins primarily reflected the impacts of (i) elevated severity in both the automobile and homeowners and other product lines, partially offset by (ii) higher business volumes. The income tax benefit in the third quarter of 2022 was higher than the same period of 2021, primarily reflecting the impact of the increase in segment loss before income taxes.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

Segment loss in the first nine months of 2022 was $79 million, compared with segment income of $433 million in the same period of 2021. The segment loss before income taxes primarily reflected the pre-tax impacts of (i) lower underlying underwriting margins, (ii) lower net favorable prior year reserve development and (iii) lower net investment income, partially offset by (iv) lower catastrophe losses. Net favorable prior year reserve development in the first nine months of 2022 and 2021 was $39 million and $263 million, respectively. Catastrophe losses in the first nine months of 2022 and 2021 were $873 million and $945 million, respectively. The lower underlying underwriting margins primarily reflected the impacts of (i) elevated severity in the current year in both the automobile and homeowners and other product lines and (ii) a comparison to a low level of loss activity in the prior year period in the automobile product line, partially offset by (iii) higher business volumes. The segment recorded an income tax benefit in the first nine months of 2022 compared with income tax expense in the same period of 2021, primarily reflecting the impact of the segment loss before income taxes compared with segment income before income taxes in the same period of 2021 and a $20 million reduction in income tax expense in the first quarter of 2022 as a result of the resolution of prior year tax matters.

Revenues

Earned Premiums

Earned premiums in the third quarter of 2022 were $3.39 billion, $332 million or 11% higher than in the same period of 2021. Earned premiums in the first nine months of 2022 were $9.76 billion, $899 million or 10% higher than in the same period of 2021. The increases in both periods of 2022 primarily reflected the increase in net written premiums over the preceding twelve months.

Net Investment Income

Net investment income in the third quarter of 2022 was $102 million, $31 million or 23% lower than in the same period of 2021. Net investment income in the first nine months of 2022 was $334 million, $57 million or 15% lower than in the same period of 2021. Refer to the “Revenues—Net Investment Income” section of the “Consolidated Results of Operations” discussion herein for a description of the factors contributing to the decreases in the Company’s consolidated net investment income in the third quarter and first nine months of 2022 compared with the same periods of 2021. In addition, refer to note 2 of the notes to the consolidated financial statements in the Company’s 2021 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 2022 and 2021 primarily consisted of installment premium charges.

Claims and Expenses

Claims and Claim Adjustment Expenses

Claims and claim adjustment expenses in the third quarter of 2022 were $2.80 billion, $409 million or 17% higher than in the same period of 2021, primarily reflecting the impacts of (i) loss cost trends, including elevated severity in both the automobile and homeowners and other product lines and (ii) higher business volumes, partially offset by (iii) lower catastrophe losses. Catastrophe losses and non-catastrophe weather-related losses in the third quarter of 2021 were reduced by recoveries under the Company's 2021 Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance Treaty.

Claims and claim adjustment expenses in the first nine months of 2022 were $7.74 billion, $1.38 billion or 22% higher than in the same period of 2021, primarily reflecting the impacts of (i) loss cost trends, including elevated severity in the current year in both the automobile and homeowners and other product lines, (ii) higher business volumes, (iii) lower net favorable prior year reserve development and (iv) a comparison to a low level of loss activity in the prior year period in the automobile product line, partially offset by (v) lower catastrophe losses. Catastrophe losses and non-catastrophe weather-related losses in the first nine months of 2021 were reduced by recoveries under the Company's 2021 Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance Treaty.

Net favorable prior year reserve development was not significant in the third quarter and first nine months of 2022. Factors contributing to net favorable prior year reserve development during the third quarter and first nine months of 2021 are discussed in more detail in note 7 of the notes to the unaudited consolidated financial statements.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

Amortization of Deferred Acquisition Costs

Amortization of deferred acquisition costs in the third quarter of 2022 was $536 million, $55 million or 11% higher than in the same period of 2021. Amortization of deferred acquisition costs in the first nine months of 2022 was $1.55 billion, $151 million or 11% higher than in the same period of 2021. The increases in both periods of 2022 were generally consistent with the increases in earned premiums.

General and Administrative Expenses

General and administrative expenses in the third quarter of 2022 were $333 million, $27 million or 8% lower than in the same period of 2021. General and administrative expenses in the first nine months of 2022 were $1.03 billion, $17 million or 2% lower than in the same period of 2021. The decreases in both periods of 2022 primarily reflected lower contingent commissions, partially offset by the impacts of higher business volumes.

Income Tax Expense (Benefit)

The income tax benefit in the third quarter of 2022 was $36 million, compared with $6 million in the same period of 2021, primarily reflecting the impact of the $139 million increase in segment loss before income taxes. The income tax benefit in the first nine months of 2022 was $66 million, compared with income tax expense of $99 million in the same period of 2021, primarily reflecting the impact of the segment loss before income taxes of $145 million as compared to segment income before income taxes of $532 million in the same period of 2021 and the $20 million reduction in income tax expense in the first quarter of 2022 as a result of the resolution of prior year tax matters.

Combined Ratio

The combined ratio of 107.2% in the third quarter of 2022 was 2.6 points higher than the combined ratio of 104.6% in the same period of 2021. The loss and loss adjustment expense ratio of 82.6% in the third quarter of 2022 was 4.4 points higher than the loss and loss adjustment expense ratio of 78.2% in the same period of 2021. The underwriting expense ratio of 24.6% for the third quarter of 2022 was 1.8 points lower than the underwriting expense ratio of 26.4% in the same period of 2021.

Catastrophe losses in the third quarters of 2022 and 2021 accounted for 8.4 points and 10.4 points, respectively, of the combined ratio. Net favorable prior year reserve development in the third quarters of 2022 and 2021 provided 0.5 points and 1.0 points of benefit, respectively, to the combined ratio. The underlying combined ratio in the third quarter of 2022 was 4.1 points higher than the 2021 ratio on the same basis, primarily reflecting the impacts of (i) elevated severity in both the automobile and homeowners and other product lines, partially offset by (ii) a lower expense ratio.

The combined ratio of 104.7% in the first nine months of 2022 was 6.4 points higher than the combined ratio of 98.3% in the same period of 2021. The loss and loss adjustment expense ratio of 79.3% in the first nine months of 2022 was 7.5 points higher than the loss and loss adjustment expense ratio of 71.8% in the same period of 2021. The underwriting expense ratio of 25.4% in the first nine months of 2022 was 1.1 points lower than the underwriting expense ratio of 26.5% in the same period of 2021.

Catastrophe losses in the first nine months of 2022 and 2021 accounted for 8.9 points and 10.6 points, respectively, of the combined ratio. Net favorable prior year reserve development in the first nine months of 2022 and 2021 provided 0.4 points and 3.0 points of benefit, respectively, to the combined ratio. The underlying combined ratio in the first nine months of 2022 was 5.5 points higher than the 2021 ratio on the same basis, primarily reflecting the impacts of (i) elevated severity in the current year in both the automobile and homeowners and other product lines and (ii) a comparison to a low level of loss activity in the prior year period in the automobile product line, partially offset by (iii) a lower expense ratio.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

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)	2022		2021		2022		2021

Domestic:
Automobile	$	1,747	$	1,535	$	4,888	$	4,394
Homeowners and Other	1,980		1,713		5,342		4,629
Total Domestic	3,727		3,248		10,230		9,023
International	178		191		515		535
Total Personal Insurance	$	3,905	$	3,439	$	10,745	$	9,558


	Net Written Premiums
	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2022		2021		2022		2021

Domestic:
Automobile	$	1,743	$	1,529	$	4,868	$	4,371
Homeowners and Other	1,952		1,698		5,164		4,476
Total Domestic	3,695		3,227		10,032		8,847
International	169		182		500		520
Total Personal Insurance	$	3,864	$	3,409	$	10,532	$	9,367

Gross and net written premiums in the third quarter of 2022 increased by 14% and 13%, respectively, over the same period of 2021. Gross and net written premiums in the first nine months of 2022 both increased by 12% over the same period of 2021.

Domestic

Automobile net written premiums of $1.74 billion and $4.87 billion in the third quarter and first nine months of 2022, respectively, increased by 14% and 11%, respectively, over the same periods of 2021. Retention rates remained strong in the third quarter and first nine months of 2022 but were lower than the same periods of 2021. Renewal premium changes in the third quarter and first nine months of 2022 remained positive and were higher than in the same periods of 2021. New business premiums in the third quarter and first nine months of 2022 increased over the same periods of 2021.

Homeowners and Other net written premiums of $1.95 billion and $5.16 billion in the third quarter and first nine months of 2022, respectively, both increased by 15% over the same periods of 2021. Retention rates remained strong in the third quarter and first nine months of 2022 but were lower than the same periods of 2021. Renewal premium changes in the third quarter and first nine months of 2022 remained positive and were higher than in the same periods of 2021. New business premiums in the third quarter of 2022 increased over the same period of 2021. New business premiums in the first nine months of 2022 decreased from the same period of 2021.

For its Domestic business, Personal Insurance had approximately 9.2 million and 8.8 million active policies at September 30, 2022 and 2021, respectively.

International

International net written premiums of $169 million and $500 million in the third quarter and first nine months of 2022, respectively, decreased by 7% and 4%, respectively, from the same periods of 2021, driven by declines in the automobile product line and the impact of changes in foreign currency exchange rates.

For its International business, Personal Insurance had approximately 455,000 and 480,000 active policies at September 30, 2022 and 2021, respectively.

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)	2022		2021		2022		2021
Income (loss)	$	(76)	$	(75)	$	(226)	$	(216)

The Income (loss) for Interest Expense and Other in the third quarters of 2022 and 2021 was $(76) million and $(75) million, respectively. Pre-tax interest expense for the third quarters of 2022 and 2021 was $88 million and $87 million, respectively. After-tax interest expense for the third quarters of 2022 and 2021 was $70 million and $69 million, respectively. The Income (loss) for Interest Expense and Other in the first nine months of 2022 and 2021 was $(226) million and $(216) million, respectively. Pre-tax interest expense in the first nine months of 2022 and 2021 was $263 million and $252 million, respectively. After-tax interest expense in the first nine months of 2022 and 2021 was $208 million and $199 million, respectively.

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. Factors underlying these claim filings include continued intensive advertising by lawyers seeking asbestos claimants and the focus by plaintiffs on defendants, such as manufacturers of talcum powder, 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. 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 disputes, including litigation, with a number of policyholders, some of whom are in bankruptcy, over coverage for asbestos-related 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. Although the Company has seen a reduction in the overall risk associated with these disputes, it remains difficult to predict the ultimate cost of these claims. 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 other direct actions against insurers, including the Company, could be filed in the future. It is difficult to predict the outcome of these proceedings, including whether the plaintiffs 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 with open claims at least annually. Among the factors 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.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

In the third quarter of 2022, the Company completed its annual in-depth asbestos claim review, including a review of policyholders with open claims and litigation cases for potential product and "non-product" liability. The number of policyholders with open asbestos claims and net asbestos payments were relatively flat compared to 2021. Payments on behalf of these policyholders continue to be influenced by an increase in severity for certain policyholders and 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, as well as recent settlements, policyholder bankruptcies, judicial rulings and legislative actions. The Company also analyzes developing payment patterns among policyholders and the assumed reinsurance component of reserves, 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 2022 and 2021 resulted in $212 million and $225 million increases, respectively, to the Company’s net asbestos reserves. In both 2022 and 2021, 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. The increase in the estimate of projected settlement and defense costs primarily resulted from payment trends that continue to be higher than previously anticipated due to the continued high level of mesothelioma claim filings and the impact of the current litigation environment surrounding those 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 2022 and 2021 were $156 million and $155 million, respectively. Net asbestos reserves were $1.39 billion and $1.41 billion at September 30, 2022 and 2021, respectively.

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)	2022		2021
Beginning reserves:
Gross	$	1,687	$	1,668
Ceded	(346)		(330)
Net	1,341		1,338

Incurred losses and loss expenses:
Gross	287		287
Ceded	(75)		(62)
Net	212		225

Paid loss and loss expenses:
Gross	205		178
Ceded	(49)		(23)
Net	156		155

Foreign exchange and other:
Gross	(4)		—
Ceded	—		—
Net	(4)		—

Ending reserves:
Gross	1,765		1,777
Ceded	(372)		(369)
Net	$	1,393	$	1,408

_________________________________________________________

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 the alleged storage, emissions or disposal of toxic substances, frequently under policies issued prior to the mid-1980s. These claims are mainly brought pursuant to various state or federal statutes that require a liable party to undertake or pay for environmental remediation. For example, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) 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 these statutes may be joint and several with other responsible parties. The Company has also been, and continues to be, involved in litigation involving insurance coverage issues pertaining to environmental claims. The Company believes that some court decisions pertaining to environmental claims have interpreted the insurance coverage to be broader than the original intent of the insurers and policyholders.

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 its 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

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

change as information concerning that policyholder and the many variables presented is developed. Conventional actuarial methods are not used to estimate these reserves.

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. These policyholders continue to present smaller exposures, are involved in fewer hazardous waste sites and are lower tier defendants than policyholders presenting such claims in the past. 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. However, the degree to which those favorable trends have continued has been less than anticipated. In addition, reserve development on existing environmental claims as well as the costs associated with coverage litigation on environmental matters 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 $12 million and $95 million in the third quarter and first nine months of 2022, respectively, and $9 million and $61 million in the third quarter and first nine months of 2021, respectively. Net environmental paid loss and loss expenses in the first nine months of 2022 and 2021 were $52 million and $55 million, respectively. Net environmental reserves were $364 million and $313 million at September 30, 2022 and 2021, respectively.

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;

•a further increase 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 we have issued;

•the resolution or adjudication of disputes concerning coverage for asbestos and environmental claims in a manner inconsistent with our previous assessment of these disputes;

•the number and outcome of direct actions against us;

•future developments pertaining to our ability to recover reinsurance for asbestos and environmental claims;

•any impact on asbestos defendants we insure due to the bankruptcy of other asbestos defendants;

•the unavailability of other insurance sources potentially available to policyholders, whether through exhaustion of policy limits or through the insolvency of other participating insurers; and

•uncertainties arising from the insolvency or bankruptcy of policyholders.

Changes in the legal, regulatory and legislative environment may impact the future resolution of asbestos and environmental claims and result in adverse loss reserve development. The emergence of a greater number of asbestos or environmental claims beyond that which is anticipated may result in adverse loss reserve development. 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, could affect the settlement of asbestos and environmental 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 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 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.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

INVESTMENT PORTFOLIO

The Company’s invested assets at September 30, 2022 were $78.11 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 thoughtful investment philosophy that focuses on appropriate risk-adjusted returns. 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 and taxable 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, 2022 was $68.45 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, 2022 and December 31, 2021. Below investment grade securities represented 1.3% and 1.4% of the total fixed maturity investment portfolio at September 30, 2022 and December 31, 2021, respectively. The weighted average effective duration of fixed maturities and short-term securities was 4.8 (5.0 excluding short-term securities) at September 30, 2022 and 4.2 (4.4 excluding short-term securities) at December 31, 2021.

Obligations of U.S. States, Municipalities and Political Subdivisions

The Company’s fixed maturity investment portfolio at September 30, 2022 and December 31, 2021 included $31.13 billion and $36.86 billion, respectively, of securities which are obligations of U.S. 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, 2022 and December 31, 2021 were $3.10 billion and $4.03 billion, respectively, of pre-refunded bonds, which are bonds for which U.S. 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 either been pre-refunded and therefore are defeased by U.S. Treasury securities or have FHA guarantees subject to federal appropriation.

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 "Aaa/Aa1" at both September 30, 2022 and December 31, 2021.

Mortgage-Backed Securities, Collateralized Mortgage Obligations and Pass-Through Securities

The Company’s fixed maturity investment portfolio at both September 30, 2022 and December 31, 2021 included $1.82 billion of residential mortgage-backed securities, including 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 both September 30, 2022 and December 31, 2021 were $846 million 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 $974 million and $971 million at September 30, 2022 and December 31, 2021, respectively. Approximately 37% and 47% of the Company’s CMO holdings at September 30, 2022 and December 31, 2021, respectively, were guaranteed by or fully collateralized by securities issued by GNMA, FNMA or FHLMC. The weighted average credit rating of the $614 million and $511 million of non-guaranteed CMO holdings was "Aaa/Aal" at both September 30, 2022 and December 31, 2021. The weighted average credit rating of all of the above securities was "Aaa/Aa1" at both September 30, 2022 and December 31, 2021. 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 2021 Annual Report.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

Equity Securities, Real Estate and Short-Term Investments

See note 1 of the notes to the consolidated financial statements in the Company’s 2021 Annual Report for further information about these invested asset classes.

Other Investments

The Company also invests in private equity, hedge fund and real estate partnerships, and joint ventures. These asset classes have historically provided a higher return than investments in fixed maturities but are subject to more volatility. At September 30, 2022 and December 31, 2021, the carrying value of the Company’s other investments was $4.01 billion and $3.86 billion, respectively.

Investments in private equity, hedge fund and real estate partnerships are accounted for under the equity method of accounting and typically report their financial statement information to the Company one month to three months following the end of the reporting period. Accordingly, net investment income from these other investments is generally reflected in the Company's financial statements on a quarter lag basis.

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 2021 Annual Report, and 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, 2022.

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

REINSURANCE RECOVERABLES

The Company reinsures a portion of the risks it underwrites in order to control its exposure to losses. 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 2021 Annual Report.

The following table summarizes the composition of the Company’s reinsurance recoverables:


(in millions)	September 30, 2022		December 31, 2021
Gross reinsurance recoverables on paid and unpaid claims and claim adjustment expenses	$	3,918	$	3,931
Gross structured settlements	2,808		2,900
Mandatory pools and associations	1,609		1,762
Gross reinsurance recoverables	8,335		8,593
Allowance for estimated uncollectible reinsurance	(133)		(141)
Net reinsurance recoverables	$	8,202	$	8,452

Net reinsurance recoverables at September 30, 2022 decreased by $250 million from December 31, 2021, primarily reflecting decreases in mandatory pools and associations and structured settlements in the first nine months of 2022.

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 term 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 (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

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

conditions, which, particularly in the case of Business Insurance, affect audit premium adjustments, policy endorsements and mid-term cancellations. 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 that 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 2022 and into 2023.

Property and casualty insurance market conditions are expected to remain competitive during the remainder of 2022 and into 2023 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. In periods of meaningful decreases in new business, despite its negative impact on underwriting gains over time, the impact of lower new business levels may positively impact the combined ratio for a period of time.

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 loss cost trends; 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.

On average for the ten-year period ended December 31, 2021, the Company experienced approximately 40% of its annual catastrophe losses during the second quarter, primarily arising out of severe wind and hail storms, including tornadoes. Hurricanes, wildfires and winter storms tend to happen at other times of the year and can also have a material impact on the Company's results of operations. Catastrophe losses incurred in a particular quarter in any given year may differ materially from historical experience. In addition, most of the Company's reinsurance programs renew on January 1 or July 1 of each year, and, therefore, any changes to the availability, cost or coverage terms of such programs will be effective after such dates.

Over much of the past decade, 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 in future periods higher or lower levels of favorable prior year reserve development, no favorable prior year reserve development or unfavorable prior year reserve development. 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, the supply chain, the labor market and geopolitical tensions, as well as steps taken by federal, state and/or local governments and the Federal Reserve, could lead to higher or lower inflation than the Company anticipated, which could in turn lead to an increase or decrease in the Company’s loss costs and the need to strengthen or reduce 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. Labor shortages, higher costs of used vehicles and parts, and increased demand and decreased supply for raw materials are adversely impacting severity in our auto and property businesses and may continue to do so in future quarters. 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/tort, regulatory and economic environments in which the Company operates, our financial results could be materially and adversely affected” in the Company's 2021 Annual Report.

Economic conditions and therefore the Company’s results of operations may be impacted by a variety of other factors as well, such as an economic slowdown or recession, financial market volatility, supply chain disruptions, monetary and fiscal policy measures, heightened geopolitical tensions, fluctuations in interest rates and foreign currency exchange rates, the political and regulatory environment, changes to the U.S. Federal budget and potential changes in tax laws.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

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 4.8 (5.0 excluding short-term securities) at September 30, 2022. 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, 2022, the Company had no open U.S. Treasury futures contracts. The Company regularly 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 and taxable U.S. municipal and taxable corporate and U.S. agency mortgage-backed bonds.

The Company also invests much smaller amounts in equity securities, real estate and private equity, hedge fund and real estate partnerships and joint ventures. These investment classes have the potential for higher returns but also the potential for greater volatility and higher degrees of risk, including less stable rates of return and less liquidity.

Approximately 23% of the fixed maturity portfolio is expected to mature over the next three years (including the early redemption of bonds, assuming interest rates (including credit spreads) do not rise significantly by applicable call dates). As a result, the overall yield on and composition of its portfolio could be meaningfully impacted by the types of investments available for reinvestment with the proceeds of maturing bonds.

Net investment income is a material contributor to the Company’s results of operations. Based on our current expectations for slightly higher levels of fixed income investments and the impact of expected higher reinvestment yields on fixed income investments, the Company expects that after-tax net investment income from that portfolio will be approximately $500 million in the fourth quarter of 2022, and the Company also currently expects that after-tax net investment income from that portfolio will be approximately $515 million to $570 million for each quarter of 2023. This expectation could be impacted by the direction of interest rates and disruptions in global financial markets. Included in other investments are private equity, hedge fund and real estate partnerships that are accounted for under the equity method of accounting and typically report their financial statement information to the Company one month to three months following the end of the reporting period. Accordingly, net investment income or loss from these other investments is generally reflected in the Company's financial statements on a quarter lag basis. Net investment income from these other investments was particularly strong during 2021 reflecting strong global financial market performance. Given that particularly strong performance, the challenging equity market in the first nine months of 2022 and the lag in reporting described above, the Company expects that net investment income from these other investments in the fourth quarter of 2022 will be significantly lower than the fourth quarter of 2021. The Company’s net investment income in future periods from its non-fixed income investment portfolio will be impacted, positively or negatively, by the performance of global financial markets.

The Company had net pre-tax realized investment losses of $211 million in the first nine months of 2022. Changes in global financial markets could result in net realized investment gains or losses in the Company’s investment portfolio.

The Company had a net pre-tax unrealized investment loss of $8.02 billion ($6.32 billion after-tax) in its fixed maturity investment portfolio at September 30, 2022, compared to a net pre-tax unrealized investment gain of $3.06 billion ($2.42 billion after-tax) at December 31, 2021. While the Company does not attempt to predict future interest rate movements, a rising interest rate environment reduces the market value of fixed maturity investments and, therefore, reduces shareholders’ equity, and a declining interest rate environment has the opposite effects. Recent increases in interest rates resulted in the net unrealized investment losses above; however, since the Company generally holds its high-quality fixed maturity investments to maturity, the net unrealized loss is generally considered temporary in nature and is not expected to result in significant realized losses. Given the temporary nature of net unrealized losses combined with the Company’s strong operating cash flows, which include income received on investments, and the proceeds received upon maturity of the investments, the net unrealized investment loss is not expected to meaningfully impact the Company’s assessment of capital adequacy or liquidity. Additionally, disruptions in global financial markets could also impact the market value of the Company’s investment portfolio. The Company's investment portfolio has benefited from certain tax exemptions (primarily those related to interest from municipal bonds) and certain other tax laws, including, but not limited to, those governing dividends-received deductions and tax credits (such as foreign tax credits). Changes in these laws could adversely impact the value of the Company's investment portfolio. See "Our businesses are heavily regulated by the states and countries in which we conduct business, including licensing, market conduct and financial supervision, and changes in regulation, including higher tax rates, may reduce our profitability and limit our growth" included in “Part I—Item 1A—Risk Factors” in the Company’s 2021 Annual Report.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

For further discussion of the Company’s investment portfolio, see “Investment Portfolio.” 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 or low returns or material realized or unrealized losses” included in “Part I—Item 1A—Risk Factors” in the Company’s 2021 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 subject to additional risks associated with our business outside the United States” included in “Part I—Item 1A—Risk Factors” in the Company’s 2021 Annual Report and see “Part II—Item 7A—Quantitative and Qualitative Disclosures About Market Risk-Foreign Currency Exchange Rate Risk” in the Company’s 2021 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, subject to the considerations described below. The Company expects that, generally over time, the combination of dividends to common shareholders and common share repurchases will likely not exceed net income. The Company also expects that to the extent that it continues to grow premium volumes, the level of capital to support the Company's financial strength ratings will also increase, and accordingly, the amount of capital returned to shareholders relative to earnings would be somewhat less than it otherwise would have been absent the growth in premium volumes. 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 appropriate for the Company’s business operations, changes in levels of written premiums, 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, changes in tax laws (including the Inflation Reduction Act) and other factors. For information regarding the Company’s common share repurchases in 2022, see “Liquidity and Capital Resources” herein. S&P has announced that it intends to change its capital adequacy model. While the proposed model has not been finalized, it could increase the level of capital S&P requires for a particular financial strength rating. As part of its capital management strategy, the Company will continue to make its own assessment of the appropriate level of capital to support the Company’s business operations. For a discussion of the risks to the Company's claims-paying and financial strength ratings, see the risk factor entitled “A downgrade in our claims-paying and financial strength ratings could adversely impact our business volumes, adversely impact our ability to access the capital markets and increase our borrowing costs” included in “Part I—Item 1A—Risk Factors" in the Company's 2021 Annual Report.

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 in Brazil through a joint venture, the Company’s capital is also subject to the effects of changes in foreign currency exchange rates. Strengthening of the U.S. dollar in comparison to other currencies could result in a reduction in shareholders’ equity, while a weakening of the U.S. dollar in comparison to other currencies could result in an increase in 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 2021 Annual Report.

Many of the statements in this “Outlook” section and in “Liquidity and Capital Resources” 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 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations" herein and “Part I—Item 1A—Risk Factors” and “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2021 Annual Report, in each case as updated by the Company's periodic filings with the SEC.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

LIQUIDITY AND CAPITAL RESOURCES

Consistent with 2021, the Company's liquidity and capital resources were not materially impacted by COVID-19 and related economic conditions during the first nine months of 2022. For further discussion regarding the potential future impacts of COVID-19 and related economic conditions on the Company's liquidity and capital resources, see “The ongoing impact of COVID-19 and related risks could materially affect our results of operations, financial position and/or liquidity” included in “Part I—Item 1A—Risk Factors” in the Company's 2021 Annual Report.

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. The Company believes that cash flows from operating activities are sufficient to meet the future liquidity requirements of its insurance subsidiaries. Additionally, investment maturities provide a significant level of available liquidity without requiring the sale of investment securities. 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 2021 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, 2022, TRV held total cash and short-term invested assets in the United States aggregating $1.45 billion and having a weighted average maturity of 41 days. TRV has established a holding company liquidity target equal to its estimated annual pre-tax interest expense and common shareholder dividends (currently approximately $1.20 billion). TRV’s holding company liquidity of $1.45 billion at September 30, 2022 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, 2022.

TRV has a shelf registration statement filed with the Securities and Exchange Commission (SEC) that expires on June 8, 2025 which permits it to issue securities from time to time. TRV also has a $1.0 billion line of credit facility with a syndicate of financial institutions that expires on June 15, 2027. At September 30, 2022, the Company had $100 million of commercial paper outstanding. TRV is not reliant on its commercial paper program to meet its operating cash flow needs. The Company has no senior notes or junior subordinated debentures maturing until April 2026, at which time $200 million of senior notes will mature.

The Company utilized uncollateralized letters of credit issued by major banks with an aggregate limit of $279 million to provide a portion of the capital needed to support its obligations at Lloyd’s at September 30, 2022. 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 2022 and 2021 was $5.13 billion and $5.58 billion, respectively. The decrease in cash flows in the first nine months of 2022 primarily reflected the impacts of higher levels of payments for claims and claim adjustments expenses, commissions and income taxes, partially offset by higher levels of cash received for premiums. The higher levels of payments for claims and claim adjustment expenses reflected the impact of COVID-19 and related economic conditions, which resulted in lower levels of payments for claims and claim adjustment expenses in the prior year period.

Investing Activities

Net cash used in investing activities in the first nine months of 2022 and 2021 was $3.05 billion and $4.42 billion, respectively. The Company’s consolidated total investments at September 30, 2022 decreased by $9.26 billion, or 11% from year-end 2021, primarily reflecting the impacts of (i) net unrealized investment losses on investments at September 30, 2022 as compared with net unrealized investment gains at December 31, 2021, due to the impact of higher interest rates during the first nine months of 2022 and (ii) net cash used in financing activities, partially offset by (iii) net cash flows provided by operating activities.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

The Company’s investment portfolio is managed to support its insurance operations; accordingly, the portfolio is positioned to meet obligations to policyholders. As such, the primary goals of the Company’s asset-liability management process are to satisfy the insurance liabilities and maintain sufficient liquidity to cover fluctuations in projected liability cash flows. Generally, the expected principal and interest payments produced by the Company’s fixed maturity portfolio adequately fund the estimated runoff of the Company’s insurance reserves. Although this is not an exact cash flow match in each period, the substantial amount by which the market value of the fixed maturity portfolio exceeds the value of the net insurance liabilities, as well as the positive cash flow from newly sold policies and the large amount of high quality liquid bonds, contributes to the Company’s ability to fund claim payments without having to sell assets at a loss or access credit facilities.

Financing Activities

Net cash used in financing activities in the first nine months of 2022 and 2021 was $2.01 billion and $1.06 billion, respectively. The totals in both 2022 and 2021 reflected common share repurchases and dividends paid to shareholders, partially offset by the net proceeds from employee stock option exercises. Common share repurchases in the first nine months of 2022 and 2021 were $1.56 billion and $1.40 billion, respectively. Net cash used in financing activities in the first nine months of 2021 also included net proceeds from the issuance of debt.

Dividends. Dividends paid to shareholders were $656 million and $655 million in the first nine months of 2022 and 2021, 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 19, 2022, the Company announced that it declared a regular quarterly dividend of $0.93 per share, payable December 30, 2022 to shareholders of record on December 9, 2022.

Share Repurchases. 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 Company expects that, generally over time, the combination of dividends to common shareholders and common share repurchases will likely not exceed net income. The Company also expects that to the extent that it continues to grow premium volumes, the amount of capital returned to shareholders relative to earnings would be somewhat less than it otherwise would have been absent the growth in premium volumes. 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 appropriate for the Company’s business operations, changes in levels of written premiums, 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, changes in tax laws (including the Inflation Reduction Act) and other factors. During the three and nine months ended September 30, 2022, the Company repurchased 3.1 million and 8.9 million common shares under its share repurchase authorizations for a total cost of $500 million and $1.50 billion, respectively. The average cost per share repurchased was $163.63 and $169.33, respectively. On April 20, 2021, the Board of Directors approved a share repurchase authorization that added an additional $5.0 billion of repurchase capacity to the $805 million of capacity remaining at that date. At September 30, 2022, the Company had $2.51 billion of capacity remaining under its share repurchase authorizations.

Capital Resources. Capital resources reflect the overall financial strength of the Company and its ability to borrow funds at competitive rates and raise new capital to meet its needs. The following table summarizes the components of the Company’s capital structure at September 30, 2022 and December 31, 2021.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


(in millions)	September 30, 2022		December 31, 2021
Debt:
Short-term	$	100	$	100
Long-term	7,254		7,254
Net unamortized fair value adjustments and debt issuance costs	(63)		(64)
Total debt	7,291		7,290

Shareholders’ equity:
Common stock and retained earnings, less treasury stock	27,814		27,694
Accumulated other comprehensive income (loss)	(7,908)		1,193
Total shareholders’ equity	19,906		28,887
Total capitalization	$	27,197	$	36,177

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.


(dollars in millions)	September 30, 2022			December 31, 2021
Total capitalization	$	27,197		$	36,177
Less: net unrealized gains (losses) on investments, net of taxes, included in shareholders' equity	(6,317)			2,415
Total capitalization excluding net unrealized gains (losses) on investments, net of taxes, included in shareholders' equity	$	33,514		$	33,762
Debt-to-total capital ratio	26.8		%	20.2		%
Debt-to-total capital ratio excluding net unrealized gains (losses) on investments, net of taxes, included in shareholders' equity	21.8		%	21.6		%

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 21.8% at September 30, 2022 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 S&P Global Ratings (S&P). The following rating agency actions were taken with respect to the Company since July 21, 2022, the date on which the Company's Form 10-Q for the quarter ended June 30, 2022 was filed with the SEC. For additional discussion of ratings, see “Part I—Item 1—Business—Ratings” in the Company’s 2021 Annual Report.

•On July 29, 2022, A.M. Best affirmed all ratings of the Company. The outlook for all ratings is stable.

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 2021 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, and impairments of investments, goodwill and other intangible assets. Except as shown in the table below, there have been no material changes to the Company’s critical accounting estimates since December 31, 2021.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

Claims and Claim Adjustment Expense Reserves

The table below displays the Company’s gross claims and claim adjustment expense reserves by product line. Because establishment of claims and claim adjustment expense reserves is an inherently uncertain process involving estimates and the application of judgment, 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 $2.15 billion at September 30, 2022) 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 insurance 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.

Gross claims and claim adjustment expense reserves by product line were as follows:


	September 30, 2022						December 31, 2021
(in millions)	Case		IBNR		Total		Case		IBNR		Total
General liability	$	5,452	$	9,146	$	14,598	$	5,351	$	8,863	$	14,214
Commercial property	1,213		419		1,632		1,220		392		1,612
Commercial multi-peril	2,720		2,591		5,311		2,404		2,573		4,977
Commercial automobile	2,643		2,361		5,004		2,594		2,335		4,929
Workers’ compensation	10,069		9,558		19,627		10,152		9,551		19,703
Fidelity and surety	156		486		642		188		436		624
Personal automobile	2,103		2,033		4,136		2,062		1,765		3,827
Personal homeowners and other	1,123		1,683		2,806		1,021		1,395		2,416
International and other	2,353		2,022		4,375		2,525		2,070		4,595
Property-casualty	27,832		30,299		58,131		27,517		29,380		56,897
Accident and health	7		—		7		10		—		10
Claims and claim adjustment expense reserves	$	27,839	$	30,299	$	58,138	$	27,527	$	29,380	$	56,907

The $1.23 billion increase in gross claims and claim adjustment expense reserves since December 31, 2021 primarily reflected the impacts of (i) higher volumes of insured exposures, (ii) loss cost trends for the current accident year and (iii) catastrophe losses in the first nine months of 2022, partially offset by (iv) net favorable prior year reserve development.

FUTURE APPLICATION OF ACCOUNTING STANDARDS

See note 1 of the notes to the unaudited consolidated financial statements contained in this quarterly report and in the Company’s 2021 Annual Report for a discussion of recently issued accounting pronouncements.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

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,” “views,” “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, renewal premium changes, underwriting margins and underlying underwriting 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 and underlying combined ratios);

•the impact of COVID-19 and related economic conditions;

•the impact of legislative or regulatory actions or court decisions;

•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 and modeling, including statements about probabilities or likelihood of exceedance;

•the impact of investment (including changes in interest rates), economic (including inflation, changes in tax laws, such as the Inflation Reduction Act, changes in commodity prices and fluctuations in foreign currency exchange rates) and underwriting market conditions;

•the impact of changing climate conditions;

•strategic and operational initiatives to improve profitability and competitiveness;

•the Company's competitive advantages and innovation agenda;

•new product offerings;

•the impact of developments in the tort environment, such as increased attorney involvement in insurance claims; and

•the impact of developments in the geopolitical environment.

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:

Insurance-Related Risks

•high levels of catastrophe losses, including as a result of factors such as increased concentrations of insured exposures in catastrophe-prone areas, 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/tort, regulatory and economic environments in which the Company operates, including increased inflation, the Company’s financial results could be materially and adversely affected;

•the Company’s business could be harmed because of its potential exposure to asbestos and environmental claims and related litigation;

•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; and

•the effects of emerging claim and coverage issues on the Company’s business are uncertain, and court decisions or legislative changes that take place after the Company issues its policies can result in an unexpected increase in the number of claims and have a material adverse impact on the Company's results of operations.

Financial, Economic and Credit Risks

•during or following a period of financial market disruption or an economic downturn, the Company’s business could be materially and adversely affected;

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

FORWARD-LOOKING STATEMENTS, Continued

•the Company’s investment portfolio is subject to credit and interest rate risk, and may suffer reduced or low returns or material realized or unrealized losses;

•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 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;

•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; and

•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.

Business and Operational Risks

•the ongoing impact of COVID-19 and related risks could materially affect the Company's results of operations, financial position and/or liquidity, including with respect to revenues, claims and claim adjustment expenses, general and administrative expenses, investments, inflation, adverse legislative and/or regulatory action, operational disruptions and heightened cyber security risks;

•the intense competition that the Company faces, including with respect to attracting and retaining employees, and the impact of innovation, technological change and changing customer preferences on the insurance industry and the markets in which it 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’s efforts to develop new products or services, expand in targeted markets, improve business processes and workflows or make acquisitions 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;

•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; and

•the Company is subject to additional risks associated with its business outside the United States.

Technology and Intellectual Property Risks

•if, as a result of cyber attacks (the risk of which could be exacerbated by geopolitical tensions) or otherwise, the Company experiences difficulties with technology, data and network security, outsourcing relationships or cloud-based technology, the Company’s ability to conduct its business could be negatively impacted;

•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; and

•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.

Regulatory and Compliance Risks

•the Company's businesses are heavily regulated by the states and countries in which it conducts business, including licensing, market conduct and financial supervision, and changes in regulation, including higher tax rates, may reduce the Company's profitability and limit its growth; and

•the Company could be adversely affected if its controls designed to ensure compliance with guidelines, policies and legal and regulatory standards are not effective.

In addition, 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 appropriate for the Company’s business operations, changes in levels of written premiums, 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

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

FORWARD-LOOKING STATEMENTS, Continued

acquisitions and related financings), market conditions, changes in tax laws (including the Inflation Reduction Act) 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 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations" herein and “Part I—Item 1A—Risk Factors” and “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2021 Annual Report, in each case 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 “Investor Toolkit” section 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 2021 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 2021 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, 2022. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2022, the design and operation of the Company’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

In addition, there was no change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2022 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.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

PART II — OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

The information required with respect to this item can be found under “Contingencies” in note 15 of the 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” and “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2021 Annual Report and "Part I—Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein, in each case as updated by the Company's periodic filings with the SEC. There have been no material changes to the risk factors disclosed in Part I—Item 1A of the Company’s 2021 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, 2022	July 31, 2022	472,999	$	158.49	471,900	$	2,930
August 1, 2022	August 31, 2022	1,754,438	$	165.12	1,751,287	$	2,641
September 1, 2022	September 30, 2022	832,810	$	163.40	832,552	$	2,505
Total		3,060,247	$	163.63	3,055,739	$	2,505

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 most recent authorization was approved by the Board of Directors on April 20, 2021 and added $5.0 billion of repurchase capacity to the $805 million capacity remaining at that date. 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 appropriate for the Company’s business operations, changes in levels of written premiums, 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, changes in tax laws (including the Inflation Reduction Act) and other factors.

The Company acquired 4,508 shares for a total cost of approximately $715,000 during the three months ended September 30, 2022 that were not part of the publicly announced share repurchase authorizations. 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.

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—Additional

Compensation Information—Stock Ownership Guidelines, Anti-Hedging and Pledging Policies, and Other Trading Restrictions” in the Company’s proxy statement filed with the SEC on April 8, 2022. 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,

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

Item 5. OTHER INFORMATION, Continued

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, none of the Company's "named executive officers" (i.e. an executive officer included in the compensation disclosures in the Company's most recent proxy statement) has entered into a Rule 10b5-1 trading plan that remains in effect.

Item 6. EXHIBITS


Exhibit Number						Description of Exhibit

3.1						Amended and Restated Articles of Incorporation of The Travelers Companies, Inc., as amended and restated May 23, 2013, were filed as Exhibit 3.1 to the Company’s current report on Form 8-K filed on May 24, 2013, and are incorporated herein by reference.

3.2						Bylaws of The Travelers Companies, Inc. as Amended and Restated October 22, 2019 were filed as Exhibit 3.2 to the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2019, and are incorporated herein by reference.



31.1†						Certification of Alan D. Schnitzer, Chairman and Chief Executive Officer of the Company, as required by Section 302 of the Sarbanes-Oxley Act of 2002.

31.2†						Certification of Daniel S. Frey, Executive Vice President and Chief Financial Officer of the Company, as required by Section 302 of the Sarbanes-Oxley Act of 2002.

32.1†						Certification of Alan D. Schnitzer, Chairman and Chief Executive Officer of the Company, as required by Section 906 of the Sarbanes-Oxley Act of 2002.

32.2†						Certification of Daniel S. Frey, Executive Vice President and Chief Financial Officer of the Company, as required by Section 906 of the Sarbanes-Oxley Act of 2002.

101.1†						The following information from The Travelers Companies, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 formatted in Inline XBRL: (i) Consolidated Statement of Income for the three months and nine months ended September 30, 2022 and 2021; (ii) Consolidated Statement of Comprehensive Income (Loss) for the three months and nine months ended September 30, 2022 and 2021; (iii) Consolidated Balance Sheet at September 30, 2022 and December 31, 2021; (iv) Consolidated Statement of Changes in Shareholders’ Equity for the three months and nine months ended September 30, 2022 and 2021; (v) Consolidated Statement of Cash Flows for the nine months ended September 30, 2022 and 2021; (vi) Notes to Consolidated Financial Statements; and (vii) the cover page.

104.1						Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101.1).

________________________________________________________

† 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.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

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 19, 2022	By	/S/ CHRISTINE K. KALLA
		Christine K. Kalla Executive Vice President and General Counsel (Authorized Signatory)

Date: October 19, 2022	By	/S/ DOUGLAS K. RUSSELL
		Douglas K. Russell Senior Vice President and Corporate Controller (Principal Accounting Officer)