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Table of Contents


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 June 30, 2019
or
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
o
Non-accelerated filer
o
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 July 19, 2019 was 260,385,722.


Table of Contents

The Travelers Companies, Inc.
 
Quarterly Report on Form 10-Q
 
For Quarterly Period Ended June 30, 2019
_________________________________________________________
 
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
Consolidated Statement of Income (Unaudited) — Three Months and Six Months Ended June 30, 2019 and 2018
3
 
 
 
 
Consolidated Statement of Comprehensive Income (Loss) (Unaudited) — Three Months and Six Months Ended June 30, 2019 and 2018
4
 
 
 
 
Consolidated Balance Sheet — June 30, 2019 (Unaudited) and December 31, 2018
5
 
 
 
 
Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) — Three Months and Six Months Ended June 30, 2019 and 2018
6
 
 
 
 
Consolidated Statement of Cash Flows (Unaudited) — Six Months Ended June 30, 2019 and 2018
7
 
 
 
 
8
 
 
 
Item 2.
41
 
 
 
Item 3.
74
 
 
 
Item 4.
74
 
 
 
 
 
 
 
 
Item 1.
74
 
 
 
Item 1A.
75
 
 
 
Item 2.
75
 
 
 
Item 5.
75
 
 
 
Item 6.
76
 
 
 
 
77
 
 
 


2

Table of Contents

PART 1 — FINANCIAL INFORMATION
 
Item 1.  FINANCIAL STATEMENTS
 
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(in millions, except per share amounts)
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Premiums
 
$
6,988

 
$
6,695

 
$
13,843

 
$
13,232

Net investment income
 
648

 
595

 
1,230

 
1,198

Fee income
 
116

 
112

 
225

 
215

Net realized investment gains (1)
 
25

 
36

 
78

 
25

Other revenues
 
57

 
39

 
129

 
93

 
 
 
 
 
 
 
 
 
Total revenues
 
7,834

 
7,477

 
15,505

 
14,763

 
 
 
 
 
 
 
 
 
Claims and expenses
 
 
 
 
 
 
 
 
Claims and claim adjustment expenses
 
4,821

 
4,562

 
9,263

 
8,858

Amortization of deferred acquisition costs
 
1,134

 
1,081

 
2,251

 
2,142

General and administrative expenses
 
1,125

 
1,113

 
2,182

 
2,175

Interest expense
 
89

 
90

 
177

 
179

Total claims and expenses
 
7,169

 
6,846

 
13,873

 
13,354

 
 
 
 
 
 
 
 
 
Income before income taxes
 
665

 
631

 
1,632

 
1,409

Income tax expense
 
108

 
107

 
279

 
216

Net income
 
$
557

 
$
524

 
$
1,353

 
$
1,193

 
 
 
 
 
 
 
 
 
Net income per share
 
 
 
 
 
 
 
 
Basic
 
$
2.11

 
$
1.93

 
$
5.12

 
$
4.39

Diluted
 
$
2.10

 
$
1.92

 
$
5.08

 
$
4.35

 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding
 
 
 
 
 
 
 
 
Basic
 
261.3

 
268.7

 
262.1

 
269.8

Diluted
 
263.7

 
271.1

 
264.2

 
272.5

 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
 
$
0.82

 
$
0.77

 
$
1.59

 
$
1.49


________________________________________________________
(1)
Total other-than-temporary impairment (OTTI) gains (losses) were $(1) million for each of the three months ended June 30, 2019 and 2018, and $(2) million and $(1) million for the six months ended June 30, 2019 and June 30, 2018, respectively.  Of total OTTI, credit losses of $(1) million for each of the three months ended June 30, 2019 and 2018, and $(2) million and $(1) million for the six months ended June 30, 2019 and June 30, 2018, respectively, were recognized in net realized investment gains.  In addition, unrealized gains (losses) from other changes in total OTTI of $0 million for each of the three months and six months ended June 30, 2019 and 2018 were recognized in other comprehensive income (loss) as part of changes in net unrealized gains (losses) on investment securities having credit losses recognized in the consolidated statement of income.
 
The accompanying notes are an integral part of the consolidated financial statements.

3

Table of Contents

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(in millions)
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Net income
 
$
557

 
$
524

 
$
1,353

 
$
1,193

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
Changes in net unrealized gains (losses) on investment securities:
 
 
 
 
 
 
 
 
Having no credit losses recognized in the consolidated statement of income
 
1,108

 
(298
)
 
2,524

 
(1,501
)
Having credit losses recognized in the consolidated statement of income
 
(4
)
 
(12
)
 
1

 
(14
)
Net changes in benefit plan assets and obligations
 
14

 
21

 
26

 
43

Net changes in unrealized foreign currency translation
 
5

 
(158
)
 
55

 
(152
)
Other comprehensive income (loss) before income taxes
 
1,123

 
(447
)
 
2,606

 
(1,624
)
Income tax expense (benefit)
 
235

 
(81
)
 
541

 
(325
)
Other comprehensive income (loss), net of taxes
 
888

 
(366
)
 
2,065

 
(1,299
)
Comprehensive income (loss)
 
$
1,445

 
$
158

 
$
3,418

 
$
(106
)
 






























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


4

Table of Contents

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
 
 
 
June 30,
2019
 
December 31,
2018
 
 
(Unaudited)
 
 
Assets
 
 
 
 
Fixed maturities, available for sale, at fair value (amortized cost $64,784 and $63,601)
 
$
67,172

 
$
63,464

Equity securities, at fair value  (cost $373 and $382)
 
406

 
368

Real estate investments
 
965

 
904

Short-term securities
 
3,487

 
3,985

Other investments
 
3,466

 
3,557

Total investments
 
75,496

 
72,278

Cash
 
416

 
373

Investment income accrued
 
615

 
624

Premiums receivable
 
8,297

 
7,506

Reinsurance recoverables
 
8,234

 
8,370

Ceded unearned premiums
 
864

 
578

Deferred acquisition costs
 
2,281

 
2,120

Deferred taxes
 

 
445

Contractholder receivables
 
4,776

 
4,785

Goodwill
 
3,943

 
3,937

Other intangible assets
 
335

 
345

Other assets
 
3,315

 
2,872

Total assets
 
$
108,572

 
$
104,233

 
 
 
 
 
Liabilities
 
 

 
 

Claims and claim adjustment expense reserves
 
$
51,073

 
$
50,668

Unearned premium reserves
 
14,538

 
13,555

Contractholder payables
 
4,776

 
4,785

Payables for reinsurance premiums
 
591

 
289

Deferred taxes
 
87

 

Debt
 
6,558

 
6,564

Other liabilities
 
5,628

 
5,478

Total liabilities
 
83,251

 
81,339

 
 
 
 
 
Shareholders’ equity
 
 

 
 

Common stock (1,750.0 shares authorized; 260.4 and 263.7 shares issued, 260.3 and 263.6 shares outstanding)
 
23,372

 
23,144

Retained earnings
 
36,135

 
35,204

Accumulated other comprehensive income (loss)
 
206

 
(1,859
)
Treasury stock, at cost (516.7 and 510.9 shares)
 
(34,392
)
 
(33,595
)
Total shareholders’ equity
 
25,321

 
22,894

Total liabilities and shareholders’ equity
 
$
108,572

 
$
104,233





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


5

Table of Contents

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
(in millions)
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Common stock
 
 

 
 

 
 

 
 

Balance, beginning of period
 
$
23,243

 
$
22,995

 
$
23,144

 
$
22,886

Employee share-based compensation
 
91

 
12

 
145

 
77

Compensation amortization under share-based plans and other changes
 
38

 
33

 
83

 
77

Balance, end of period
 
23,372

 
23,040

 
23,372

 
23,040

 
 
 
 
 
 
 
 
 
Retained earnings
 
 

 
 

 
 

 
 

Balance, beginning of period
 
35,795

 
33,981

 
35,204

 
33,462

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

 

 

 
22

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

 

 

 
24

Net income
 
557

 
524

 
1,353

 
1,193

Dividends
 
(217
)
 
(209
)
 
(421
)
 
(406
)
Other
 

 

 
(1
)
 
1

Balance, end of period
 
36,135

 
34,296

 
36,135

 
34,296

 
 
 
 
 
 
 
 
 
Accumulated other comprehensive income (loss), net of tax
 
 

 
 

 
 

 
 

Balance, beginning of period
 
(682
)
 
(1,322
)
 
(1,859
)
 
(343
)
Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1, 2018
 

 

 

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

 

 

 
(24
)
Other comprehensive income (loss)
 
888

 
(366
)
 
2,065

 
(1,299
)
Balance, end of period
 
206

 
(1,688
)
 
206

 
(1,688
)
 
 
 
 
 
 
 
 
 
Treasury stock, at cost
 
 

 
 

 
 

 
 

Balance, beginning of period
 
(34,016
)
 
(32,675
)
 
(33,595
)
 
(32,274
)
Treasury stock acquired — share repurchase authorization
 
(375
)
 
(350
)
 
(750
)
 
(700
)
Net shares acquired related to employee share-based compensation plans
 
(1
)
 

 
(47
)
 
(51
)
Balance, end of period
 
(34,392
)
 
(33,025
)
 
(34,392
)
 
(33,025
)
 
 
 
 
 
 
 
 
 
Total shareholders’ equity
 
$
25,321

 
$
22,623

 
$
25,321

 
$
22,623

 
 
 
 
 
 
 
 
 
Common shares outstanding
 
 

 
 

 
 

 
 

Balance, beginning of period
 
261.9

 
270.2

 
263.6

 
271.4

Treasury stock acquired — share repurchase authorization
 
(2.6
)
 
(2.7
)
 
(5.5
)
 
(5.2
)
Net shares issued under employee share-based compensation plans
 
1.0

 
0.2

 
2.2

 
1.5

Balance, end of period
 
260.3

 
267.7

 
260.3

 
267.7

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

6

Table of Contents

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(in millions)
 
 
Six Months Ended
 
 
June 30,
 
 
2019
 
2018
Cash flows from operating activities
 
 

 
 

Net income
 
$
1,353

 
$
1,193

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

 
 

Net realized investment gains
 
(78
)
 
(25
)
Depreciation and amortization
 
401

 
411

Deferred federal income tax expense (benefit)
 
10

 
(70
)
Amortization of deferred acquisition costs
 
2,251

 
2,142

Equity in income from other investments
 
(132
)
 
(169
)
Premiums receivable
 
(779
)
 
(660
)
Reinsurance recoverables
 
151

 
29

Deferred acquisition costs
 
(2,408
)
 
(2,284
)
Claims and claim adjustment expense reserves
 
329

 
435

Unearned premium reserves
 
958

 
879

Other
 
(264
)
 
(183
)
Net cash provided by operating activities
 
1,792

 
1,698

 
 
 
 
 
Cash flows from investing activities
 
 

 
 

Proceeds from maturities of fixed maturities
 
3,038

 
3,657

Proceeds from sales of investments:
 
 

 
 

Fixed maturities
 
1,495

 
2,607

Equity securities
 
71

 
92

Other investments
 
240

 
189

Purchases of investments:
 
 

 
 

Fixed maturities
 
(5,708
)
 
(7,952
)
Equity securities
 
(41
)
 
(60
)
Real estate investments
 
(85
)
 
(44
)
Other investments
 
(262
)
 
(275
)
Net sales of short-term securities
 
497

 
1,202

Securities transactions in course of settlement
 
223

 
279

Other
 
(169
)
 
(152
)
Net cash used in investing activities
 
(701
)
 
(457
)
 
 
 
 
 
Cash flows from financing activities
 
 

 
 

Treasury stock acquired — share repurchase authorization
 
(750
)
 
(700
)
Treasury stock acquired — net employee share-based compensation
 
(47
)
 
(51
)
Dividends paid to shareholders
 
(419
)
 
(404
)
Payment of debt
 
(500
)
 
(600
)
Issuance of debt
 
492

 
491

Issuance of common stock — employee share options
 
174

 
98

Net cash used in financing activities
 
(1,050
)
 
(1,166
)
Effect of exchange rate changes on cash
 
2

 
(4
)
Net increase in cash
 
43

 
71

Cash at beginning of year
 
373

 
344

Cash at end of period
 
$
416

 
$
415

 
 
 
 
 
Supplemental disclosure of cash flow information
 
 

 
 

Income taxes paid
 
$
325

 
$
238

Interest paid
 
$
171

 
$
175

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

7

Table of Contents

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
1.     BASIS OF PRESENTATION AND ACCOUNTING POLICIES
 
Basis of Presentation
 
The interim consolidated financial statements include the accounts of The Travelers Companies, Inc. (together with its subsidiaries, the Company). These financial statements are prepared in conformity with U.S. generally accepted accounting principles (GAAP) and are unaudited.  In the opinion of the Company’s management, all adjustments necessary for a fair presentation have been reflected.  Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted.  All material intercompany transactions and balances have been eliminated.  The accompanying interim consolidated financial statements and related notes should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (the Company’s 2018 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.
 
Adoption of Accounting Standards

Leases

Effective for the quarter ended March 31, 2019, the Company adopted the updated guidance for leases and elected to utilize a cumulative-effect adjustment to the opening balance of retained earnings for the year of adoption.  Accordingly, the Company’s reporting for the comparative periods prior to adoption continue to be presented in the financial statements in accordance with previous lease accounting guidance.  The Company also elected to apply all practical expedients applicable to the Company in the updated guidance for transition for leases in effect at adoption, including using hindsight to determine the lease term of existing leases, the option to not reassess whether an existing contract is a lease or contains a lease and whether the lease is an operating or finance lease. The adoption of the updated guidance resulted in the Company recognizing a right-of-use asset of $320 million as part of other assets and a lease liability of $384 million as part of other liabilities in the consolidated balance sheet, as well as de-recognizing the liability for deferred rent that was required under the previous guidance, for its corporate real estate agreements at March 31, 2019.  The cumulative effect adjustment to the opening balance of retained earnings was zero. The adoption of the updated guidance did not have a material effect on the Company’s results of operations or liquidity.

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

Effective for the quarter ended March 31, 2019, the Company adopted the updated guidance regarding Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, and applied the guidance prospectively.  The updated guidance requires an entity to determine the stage of a project that the implementation activity relates to and the nature of the associated costs in order to determine whether those costs should be expensed as incurred or capitalized.  The updated guidance also requires the entity to amortize the capitalized implementation costs as an expense over the term of the hosting arrangement. The adoption of the updated guidance did not have a material effect on the Company’s results of operations, financial position or liquidity.

For additional information regarding accounting standards that the Company adopted during the periods presented, see note 1 of notes to the consolidated financial statements in the Company’s 2018 Annual Report.

Accounting Standards Not Yet Adopted
 
For information regarding accounting standards that the Company has not yet adopted, see the “Other Accounting Standards Not Yet Adopted” section of note 1 of notes to the consolidated financial statements in the Company’s 2018 Annual Report.


8

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

Nature of Operations
 
The Company’s results are reported in the following three business segments — Business Insurance, Bond & Specialty Insurance and Personal Insurance. These segments reflect the manner in which the Company’s businesses are currently managed and represent an aggregation of products and services based on the type of customer, how the business is marketed and the manner in which risks are underwritten. For more information regarding the Company’s nature of operations, see the “Nature of Operations section of note 1 of notes to the consolidated financial statements in the Company’s 2018 Annual Report.
 
2.    SEGMENT INFORMATION
 
The following tables summarize the components of the Company’s revenues, income and total assets by reportable business segments:
(For the three months ended June 30, in millions)
 
Business
Insurance
 
Bond & Specialty
Insurance
 
Personal
Insurance
 
Total
Reportable
Segments
 
 
 
 
 
 
 
 
 
2019
 
 

 
 

 
 

 
 

Premiums
 
$
3,783

 
$
632

 
$
2,573

 
$
6,988

Net investment income
 
481

 
58

 
109

 
648

Fee income
 
111

 

 
5

 
116

Other revenues
 
30

 
6

 
21

 
57

Total segment revenues (1)
 
$
4,405

 
$
696

 
$
2,708

 
$
7,809

Segment income (1)
 
$
351

 
$
174

 
$
88

 
$
613

 
 
 
 
 
 
 
 
 
2018
 
 

 
 

 
 

 
 

Premiums
 
$
3,641

 
$
601

 
$
2,453

 
$
6,695

Net investment income
 
440

 
57

 
98

 
595

Fee income
 
107

 

 
5

 
112

Other revenues
 
20

 
5

 
14

 
39

Total segment revenues (1)
 
$
4,208

 
$
663

 
$
2,570

 
$
7,441

Segment income (loss) (1)
 
$
385

 
$
204

 
$
(17
)
 
$
572


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


9

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

(For the six months ended June 30, in millions)
 
Business
Insurance
 
Bond & Specialty
Insurance
 
Personal
Insurance
 
Total
Reportable
Segments
2019
 
 

 
 

 
 

 
 

Premiums
 
$
7,525

 
$
1,238

 
$
5,080

 
$
13,843

Net investment income
 
908

 
114

 
208

 
1,230

Fee income
 
215

 

 
10

 
225

Other revenues
 
73

 
12

 
43

 
128

Total segment revenues (1)
 
$
8,721

 
$
1,364

 
$
5,341

 
$
15,426

Segment income (1)
 
$
765

 
$
312

 
$
366

 
$
1,443

 
 
 
 
 
 
 
 
 
2018
 
 

 
 

 
 

 
 

Premiums
 
$
7,209

 
$
1,183

 
$
4,840

 
$
13,232

Net investment income
 
886

 
115

 
197

 
1,198

Fee income
 
206

 

 
9

 
215

Other revenues
 
51

 
11

 
31

 
93

Total segment revenues (1)
 
$
8,352

 
$
1,309

 
$
5,077

 
$
14,738

Segment income (1)
 
$
837

 
$
377

 
$
112

 
$
1,326


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


10

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

Business Segment Reconciliations
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in millions)
 
2019
 
2018
 
2019
 
2018
Revenue reconciliation
 
 

 
 

 
 

 
 

Earned premiums
 
 

 
 

 
 

 
 

Business Insurance:
 
 

 
 

 
 

 
 

Domestic:
 
 

 
 

 
 

 
 

Workers’ compensation
 
$
950

 
$
973

 
$
1,922

 
$
1,944

Commercial automobile
 
647

 
587

 
1,275

 
1,149

Commercial property
 
473

 
453

 
933

 
891

General liability
 
585

 
535

 
1,152

 
1,056

Commercial multi-peril
 
856

 
822

 
1,696

 
1,627

Other
 
9

 
6

 
17

 
13

Total Domestic
 
3,520

 
3,376

 
6,995

 
6,680

International
 
263

 
265

 
530

 
529

Total Business Insurance
 
3,783

 
3,641

 
7,525

 
7,209

Bond & Specialty Insurance:
 
 

 
 

 
 

 
 

Domestic:
 
 

 
 

 
 

 
 

Fidelity and surety
 
258

 
253

 
504

 
499

General liability
 
266

 
248

 
523

 
490

Other
 
53

 
49

 
105

 
96

Total Domestic
 
577

 
550

 
1,132

 
1,085

International
 
55

 
51

 
106

 
98

Total Bond & Specialty Insurance
 
632

 
601

 
1,238

 
1,183

Personal Insurance:
 
 

 
 

 
 

 
 

Domestic:
 
 

 
 

 
 

 
 

Automobile
 
1,321

 
1,261

 
2,618

 
2,486

Homeowners and Other
 
1,078

 
1,022

 
2,117

 
2,017

Total Domestic
 
2,399

 
2,283

 
4,735

 
4,503

International
 
174

 
170

 
345

 
337

Total Personal Insurance
 
2,573

 
2,453

 
5,080

 
4,840

Total earned premiums
 
6,988

 
6,695

 
13,843

 
13,232

Net investment income
 
648

 
595

 
1,230

 
1,198

Fee income
 
116

 
112

 
225

 
215

Other revenues
 
57

 
39

 
128

 
93

Total segment revenues
 
7,809

 
7,441

 
15,426

 
14,738

Other revenues
 

 

 
1

 

Net realized investment gains
 
25

 
36

 
78

 
25

Total revenues
 
$
7,834

 
$
7,477

 
$
15,505

 
$
14,763

Income reconciliation, net of tax
 
 

 
 

 
 

 
 

Total segment income
 
$
613

 
$
572

 
$
1,443

 
$
1,326

Interest Expense and Other (1)
 
(76
)
 
(78
)
 
(151
)
 
(154
)
Core income
 
537

 
494

 
1,292

 
1,172

Net realized investment gains
 
20

 
30

 
61

 
21

Net income
 
$
557

 
$
524

 
$
1,353

 
$
1,193

_________________________________________________________
(1) The primary component of Interest Expense and Other was after-tax interest expense of $70 million and $71 million for the three months ended June 30, 2019 and 2018, respectively, and $140 million and $141 million for the six months ended June 30, 2019 and 2018, respectively.

11

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

(in millions)
 
June 30,
2019
 
December 31,
2018
Asset reconciliation
 
 

 
 

Business Insurance
 
$
82,762

 
$
78,965

Bond & Specialty Insurance
 
8,445

 
8,693

Personal Insurance
 
16,602

 
15,943

Total assets by reportable segment
 
107,809

 
103,601

Other assets (1)
 
763

 
632

Total consolidated assets
 
$
108,572

 
$
104,233

 _________________________________________________________
(1)
The primary components of other assets at both June 30, 2019 and December 31, 2018 were accrued 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
 
Gross Unrealized
 
Fair
(at June 30, 2019, in millions)
 
Cost
 
Gains
 
Losses
 
Value
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities
 
$
2,000

 
$
20

 
$
2

 
$
2,018

Obligations of states, municipalities and political subdivisions:
 
 

 
 

 
 

 
 

Local general obligation
 
15,187

 
692

 
1

 
15,878

Revenue
 
9,701

 
499

 

 
10,200

State general obligation
 
1,273

 
53

 

 
1,326

Pre-refunded
 
2,251

 
75

 

 
2,326

Total obligations of states, municipalities and political subdivisions
 
28,412

 
1,319

 
1

 
29,730

Debt securities issued by foreign governments
 
1,112

 
14

 
1

 
1,125

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
 
2,839

 
90

 
4

 
2,925

All other corporate bonds
 
30,371

 
982

 
32

 
31,321

Redeemable preferred stock
 
50

 
3

 

 
53

Total
 
$
64,784

 
$
2,428

 
$
40

 
$
67,172


 

12

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

 
 
Amortized
 
Gross Unrealized
 
Fair
(at December 31, 2018, in millions)
 
Cost
 
Gains
 
Losses
 
Value
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities
 
$
2,076

 
$
4

 
$
16

 
$
2,064

Obligations of states, municipalities and political subdivisions:
 
 

 
 

 
 

 
 

Local general obligation
 
14,473

 
219

 
120

 
14,572

Revenue
 
9,755

 
172

 
74

 
9,853

State general obligation
 
1,329

 
18

 
13

 
1,334

Pre-refunded
 
2,772

 
80

 

 
2,852

Total obligations of states, municipalities and political subdivisions
 
28,329

 
489

 
207

 
28,611

Debt securities issued by foreign governments
 
1,255

 
7

 
5

 
1,257

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
 
2,557

 
54

 
38

 
2,573

All other corporate bonds
 
29,307

 
156

 
583

 
28,880

Redeemable preferred stock
 
77

 
2

 

 
79

Total
 
$
63,601

 
$
712

 
$
849

 
$
63,464


 
Pre-refunded bonds of $2.33 billion and $2.85 billion at June 30, 2019 and December 31, 2018, respectively, were bonds for which states or municipalities have established irrevocable trusts, almost exclusively comprised of U.S. Treasury securities and obligations of U.S. government and government agencies and authorities.  These trusts were created to fund the payment of principal and interest due under the bonds.
 
Proceeds from sales of fixed maturities classified as available for sale were $1.50 billion and $2.61 billion during the six months ended June 30, 2019 and 2018, respectively. Gross gains of $35 million and $24 million and gross losses of $4 million and $11 million were realized on those sales during the six months ended June 30, 2019 and 2018, respectively.
 
Equity Securities
 
The cost and fair value of investments in equity securities were as follows:
 
 
 
 
 
 
Fair
(at June 30, 2019, in millions)
 
Cost
 
Gross Gains
 
Gross Losses
 
Value
Public common stock
 
$
337

 
$
31

 
$
5

 
$
363

Non-redeemable preferred stock
 
36

 
7

 

 
43

Total
 
$
373

 
$
38

 
$
5

 
$
406


 
 
 
 
 
 
 
Fair
(at December 31, 2018, in millions)
 
Cost
 
Gross Gains
 
Gross Losses
 
Value
Public common stock
 
$
338

 
$
2

 
$
24

 
$
316

Non-redeemable preferred stock
 
44

 
8

 

 
52

Total
 
$
382

 
$
10

 
$
24

 
$
368


 
For the six months ended June 30, 2019, the Company recognized $45 million of net gains on equity securities still held as of June 30, 2019. For the six months ended June 30, 2018, the Company recognized $3 million of net gains on equity securities still held as of June 30, 2018.


13

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 investments in an unrealized loss position at June 30, 2019 and December 31, 2018, the aggregate fair value and gross unrealized loss by length of time those securities have been continuously in an unrealized loss position.  The fair value amounts reported in the tables are estimates that are prepared using the process described in note 4 herein and in note 4 of notes to the consolidated financial statements in the Company’s 2018 Annual Report.  The Company also relies upon estimates of several factors in its review and evaluation of individual investments, using the process described in note 1 of notes to the consolidated financial statements in the Company’s 2018 Annual Report to determine whether such investments are other-than-temporarily impaired.
 
 
Less than 12 months
 
12 months or longer
 
Total
(at June 30, 2019, 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
 
$
15

 
$

 
$
503

 
$
2

 
$
518

 
$
2

Obligations of states, municipalities and political subdivisions
 
126

 

 
232

 
1

 
358

 
1

Debt securities issued by foreign governments
 
24

 

 
210

 
1

 
234

 
1

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
 
88

 

 
472

 
4

 
560

 
4

All other corporate bonds
 
277

 
2

 
3,014

 
30

 
3,291

 
32

Total fixed maturities
 
$
530

 
$
2

 
$
4,431

 
$
38

 
$
4,961

 
$
40

 
 
 
Less than 12 months
 
12 months or longer
 
Total
(at December 31, 2018, in millions)
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 

U.S. Treasury securities and obligations of U.S. government and government agencies and authorities
 
$
484

 
$
5

 
$
1,011

 
$
11

 
$
1,495

 
$
16

Obligations of states, municipalities and political subdivisions
 
5,241

 
82

 
3,298

 
125

 
8,539

 
207

Debt securities issued by foreign governments
 
96

 

 
328

 
5

 
424

 
5

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
 
593

 
9

 
1,070

 
29

 
1,663

 
38

All other corporate bonds
 
12,622

 
303

 
6,872

 
280

 
19,494

 
583

Total fixed maturities
 
$
19,036

 
$
399

 
$
12,579

 
$
450

 
$
31,615

 
$
849


 
At June 30, 2019, the amount of gross unrealized losses for all fixed maturity investments reported at fair value for which fair value was less than 80% of amortized cost was not significant.
 

14

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

Impairment Charges
 
Impairment charges included in net realized investment gains in the consolidated statement of income were $1 million for each of the three months ended June 30, 2019 and 2018, and $2 million and $1 million for the six months ended June 30, 2019 and 2018, respectively.

The cumulative amount of credit losses on fixed maturities held at June 30, 2019 and 2018 that were recognized in the consolidated statement of income from other-than-temporary impairments (OTTI) and for which a portion of the OTTI was recognized in other comprehensive income (loss) in the consolidated balance sheet was $54 million and $67 million, respectively.  These credit losses represent less than 1% of the fixed maturity portfolio on a pre-tax basis and less than 1% of shareholders’ equity on an after-tax basis at both dates.  There were no significant changes in the credit component of OTTI during the three months and six months ended June 30, 2019 and 2018 compared to what was disclosed in note 3 of notes to the consolidated financial statements in the Company’s 2018 Annual Report.
 
4.    FAIR VALUE MEASUREMENTS
 
The Company’s estimates of fair value for financial assets and financial liabilities are based on the framework established in the fair value accounting guidance.  The framework is based on the inputs used in valuation, gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available.  The disclosure of fair value estimates in the fair value accounting guidance hierarchy is based on whether the significant inputs into the valuation are observable.  In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions.  The level in the fair value hierarchy within which the fair value measurement is reported is based on the lowest level input that is significant to the measurement in its entirety.  The three levels of the hierarchy are as follows:
 
Level 1 - Unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.
Level 3 - Valuations based on models where significant inputs are not observable.  The unobservable inputs reflect the Company’s own assumptions about the inputs that market participants would use.
 
Valuation of Investments Reported at Fair Value in Financial Statements
 
The Company utilized a pricing service to estimate fair value measurements for approximately 99% of its fixed maturities at both June 30, 2019 and December 31, 2018.
 
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 also estimates the fair value of these bonds using another internal pricing matrix that includes some unobservable inputs that are significant to the valuation.  Due to the limited amount of observable market information, the Company includes the fair value estimates for these particular bonds in Level 3.  The fair value of the fixed maturities for which the Company used this internal pricing matrix was $78 million and $82 million at June 30, 2019 and December 31, 2018, respectively.  Additionally, the Company holds a small amount of other fixed maturity investments that have characteristics that make them unsuitable for matrix pricing.  For these fixed maturities, the Company obtains a quote from a broker (primarily the market maker).  The fair value of the fixed maturities for which the Company received a broker quote was $32 million and $104 million at June 30, 2019 and December 31, 2018, respectively.  Due to the disclaimers on the quotes that indicate that the price is indicative only, the Company includes these fair value estimates in Level 3.

For more information regarding the valuation of the Company’s fixed maturities, equity securities and other investments, see note 4 of notes to the consolidated financial statements in the Company’s 2018 Annual Report.


15