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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 March 31, 2023
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 filerýAccelerated 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 April 14, 2023 was 230,976,565.



The Travelers Companies, Inc.
 
Quarterly Report on Form 10-Q
 
For Quarterly Period Ended March 31, 2023
_________________________________________________________
 
TABLE OF CONTENTS
 
  Page
  
   
Item 1. 
   
 
Consolidated Statement of Income (Unaudited) — Three Months Ended March 31, 2023 and 2022
   
 
Consolidated Statement of Comprehensive Income (Loss) (Unaudited) — Three Months Ended March 31, 2023 and 2022
   
 
Consolidated Balance Sheet — March 31, 2023 (Unaudited) and December 31, 2022
   
 
Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) — Three Months Ended March 31, 2023 and 2022
   
 
Consolidated Statement of Cash Flows (Unaudited) — Three Months Ended March 31, 2023 and 2022
   
 
   
Item 2.
   
Item 3.
   
Item 4.
   
  
   
Item 1.
   
Item 1A.
   
Item 2.
   
Item 5.
   
Item 6.
   
 
   

2

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
March 31,
20232022
Revenues
Premiums$8,854 $8,014 
Net investment income663 637 
Fee income106 103 
Net realized investment gains (losses)6 (23)
Other revenues75 78 
Total revenues9,704 8,809 
Claims and expenses
Claims and claim adjustment expenses5,959 5,039 
Amortization of deferred acquisition costs1,462 1,310 
General and administrative expenses1,267 1,191 
Interest expense88 87 
Total claims and expenses8,776 7,627 
Income before income taxes928 1,182 
Income tax expense (benefit)(47)164 
Net income$975 $1,018 
Net income per share
Basic$4.18 $4.20 
Diluted$4.13 $4.15 
Weighted average number of common shares outstanding
Basic231.7 240.9 
Diluted234.4 243.7 
Cash dividends declared per common share$0.93 $0.88 

 









The accompanying notes are an integral part of the consolidated financial statements.
3

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(in millions)
 
Three Months Ended
March 31,
20232022
Net income$975 $1,018 
Other comprehensive income (loss):
Changes in net unrealized gains (losses) on investment securities:
Having no credit losses recognized in the consolidated statement of income1,308 (4,829)
Having credit losses recognized in the consolidated statement of income— (1)
Net changes in benefit plan assets and obligations(3)11 
Net changes in unrealized foreign currency translation37 2 
Other comprehensive income (loss) before income taxes1,342 (4,817)
Income tax expense (benefit)283 (1,022)
Other comprehensive income (loss), net of taxes1,059 (3,795)
Comprehensive income (loss)$2,034 $(2,777)
 


































The accompanying notes are an integral part of the consolidated financial statements.
4

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
 
March 31,
2023		December 31,
2022
(Unaudited)
Assets
Fixed maturities, available for sale, at fair value (amortized cost $77,827 and $77,380; allowance for expected credit losses of $4 and $3)
$72,914 $71,160 
Equity securities, at fair value (cost $592 and $747)
649 807 
Real estate investments953 952 
Short-term securities3,243 3,470 
Other investments4,276 4,065 
Total investments82,035 80,454 
Cash767 799 
Investment income accrued594 650 
Premiums receivable (net of allowance for expected credit
    losses of $77 and $77)
9,483 8,922 
Reinsurance recoverables (net of allowance for estimated uncollectible
  reinsurance of $131 and $132)
8,091 8,063 
Ceded unearned premiums1,360 1,024 
Deferred acquisition costs3,005 2,836 
Deferred taxes1,568 1,877 
Contractholder receivables (net of allowance for expected credit
   losses of $19 and $17)
3,598 3,579 
Goodwill3,959 3,952 
Other intangible assets285 287 
Other assets3,607 3,274 
Total assets$118,352 $115,717 
Liabilities  
Claims and claim adjustment expense reserves$59,064 $58,649 
Unearned premium reserves19,143 18,240 
Contractholder payables3,617 3,596 
Payables for reinsurance premiums761 419 
Debt7,292 7,292 
Other liabilities5,423 5,961 
Total liabilities95,300 94,157 
Shareholders’ equity  
Common stock (1,750.0 shares authorized; 231.0 and 232.1 shares issued and outstanding)
24,703 24,565 
Retained earnings44,273 43,516 
Accumulated other comprehensive loss(5,386)(6,445)
Treasury stock, at cost (556.0 and 553.5 shares)
(40,538)(40,076)
Total shareholders’ equity23,052 21,560 
Total liabilities and shareholders’ equity$118,352 $115,717 





The accompanying notes are an integral part of the consolidated financial statements.
5

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
(in millions)
 
Three Months Ended
March 31,
20232022
Common stock  
Balance, beginning of period$24,565 $24,154 
Employee share-based compensation68 135 
Compensation amortization under share-based plans and other changes
70 59 
Balance, end of period24,703 24,348 
Retained earnings  
Balance, beginning of period43,516 41,555 
Net income975 1,018 
Dividends(218)(214)
Balance, end of period44,273 42,359 
Accumulated other comprehensive income (loss), net of tax  
Balance, beginning of period(6,445)1,193 
Other comprehensive income (loss)1,059 (3,795)
Balance, end of period(5,386)(2,602)
Treasury stock, at cost  
Balance, beginning of period(40,076)(38,015)
Treasury stock acquired — share repurchase authorizations(400)(500)
Net shares acquired related to employee share-based compensation plans
(62)(59)
Balance, end of period(40,538)(38,574)
Total shareholders’ equity$23,052 $25,531 
Common shares outstanding  
Balance, beginning of period232.1 241.2 
Treasury stock acquired — share repurchase authorizations(2.2)(2.9)
Net shares issued under employee share-based compensation plans
1.1 1.7 
Balance, end of period231.0 240.0 
 











The accompanying notes are an integral part of the consolidated financial statements.
6

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(in millions)
Three Months Ended March 31,
20232022
Cash flows from operating activities  
Net income$975 $1,018 
Adjustments to reconcile net income to net cash provided by operating activities:  
Net realized investment (gains) losses(6)23 
Depreciation and amortization204 234 
Deferred federal income tax expense32 40 
Amortization of deferred acquisition costs1,462 1,310 
Equity in income from other investments(30)(118)
Premiums receivable(557)(509)
Reinsurance recoverables(24)(282)
Deferred acquisition costs(1,629)(1,413)
Claims and claim adjustment expense reserves381 679 
Unearned premium reserves893 727 
Other(689)(443)
Net cash provided by operating activities1,012 1,266 
Cash flows from investing activities  
Proceeds from maturities of fixed maturities1,538 1,879 
Proceeds from sales of investments:  
Fixed maturities2,364 1,044 
Equity securities28 63 
Other investments64 81 
Purchases of investments:  
Fixed maturities(4,335)(4,409)
Equity securities(34)(63)
Real estate investments(14)(9)
Other investments(139)(135)
Net sales of short-term securities228 367 
Securities transactions in the course of settlement(35)613 
Acquisition, net of cash acquired— (4)
Other(120)(84)
Net cash used in investing activities(455)(657)
Cash flows from financing activities  
Treasury stock acquired — share repurchase authorizations(398)(500)
Treasury stock acquired — net employee share-based compensation(62)(59)
Dividends paid to shareholders(215)(213)
Issuance of common stock — employee share options82 159 
Net cash used in financing activities(593)(613)
Effect of exchange rate changes on cash4 (5)
Net decrease in cash(32)(9)
Cash at beginning of year799 761 
Cash at end of period$767 $752 
Supplemental disclosure of cash flow information  
Income taxes paid (received)$(16)$10 
Interest paid$60 $59 

The accompanying notes are an integral part of the consolidated financial statements.
7
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, 2022 (the Company’s 2022 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

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 2022 Annual Report.

Income Taxes
The Company recognized a one-time tax benefit of $211 million in the first quarter of 2023 due to the expiration of the statute of limitations with respect to a tax item impacted by the repeal of Internal Revenue Code Section 847, which related to the discounting of property-casualty loss reserves.

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 2022 Annual Report.
8
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 and total assets by reportable business segments:
(For the three months ended March 31, in millions) Business
Insurance		Bond & Specialty
Insurance		Personal
Insurance		Total
Reportable
Segments
2023    
Premiums$4,477 $875 $3,502 $8,854 
Net investment income473 73 117 663 
Fee income99 — 7 106 
Other revenues47 5 23 75 
Total segment revenues (1)
$5,096 $953 $3,649 $9,698 
Segment income (1)
$756 $207 $83 $1,046 
2022    
Premiums$4,071 $820 $3,123 $8,014 
Net investment income468 59 110 637 
Fee income96 — 7 103 
Other revenues53 4 21 78 
Total segment revenues (1)
$4,688 $883 $3,261 $8,832 
Segment income (1)
$669 $217 $225 $1,111 
________________________________________________________
(1)Segment revenues for reportable business segments exclude net realized investment gains (losses) and revenues included in “interest expense and other.” Segment income for reportable business segments excludes the after-tax impact of net realized investment gains (losses) and income (loss) from “interest expense and other.”


9
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
2.    SEGMENT INFORMATION, Continued
Business Segment Reconciliations
 Three Months Ended
March 31,
(in millions)20232022
Revenue reconciliation  
Earned premiums  
Business Insurance:  
Domestic:  
Workers’ compensation$850 $830 
Commercial automobile761 713 
Commercial property709 608 
General liability760 688 
Commercial multi-peril1,100 967 
Other18 17 
Total Domestic4,198 3,823 
International279 248 
Total Business Insurance4,477 4,071 
Bond & Specialty Insurance:  
Domestic:  
Fidelity and surety306 274 
General liability398 373 
Other54 55 
Total Domestic758 702 
International117 118 
Total Bond & Specialty Insurance875 820 
Personal Insurance:  
Domestic:  
Automobile1,624 1,458 
Homeowners and Other1,724 1,496 
Total Domestic3,348 2,954 
International154 169 
Total Personal Insurance3,502 3,123 
Total earned premiums8,854 8,014 
Net investment income663 637 
Fee income106 103 
Other revenues75 78 
Total segment revenues9,698 8,832 
Net realized investment gains (losses)6 (23)
Total revenues$9,704 $8,809 
Income reconciliation, net of tax  
Total segment income$1,046 $1,111 
Interest Expense and Other (1)
(76)(74)
Core income970 1,037 
Net realized investment gains (losses)5 (19)
Net income$975 $1,018 
_________________________________________________________
(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 March 31, 2023 and 2022, respectively.
10
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
2.    SEGMENT INFORMATION, Continued
(in millions)March 31,
2023		December 31,
2022
Asset reconciliation  
Business Insurance$88,468 $86,522 
Bond & Specialty Insurance10,539 10,119 
Personal Insurance18,514 18,275 
Total assets by reportable segment117,521 114,916 
Other assets (1)
831 801 
Total consolidated assets$118,352 $115,717 
 _________________________________________________________
(1)The primary components of other assets at both March 31, 2023 and December 31, 2022 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 CostAllowance for Expected Credit LossesGross UnrealizedFair Value
(at March 31, 2023, in millions)GainsLosses
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities
$6,617 $— $18 $283 $6,352 
Obligations of U.S. states, municipalities and political subdivisions:
Local general obligation18,866 — 74 1,430 17,510 
Revenue10,321 — 51 709 9,663 
State general obligation1,198 — 5 68 1,135 
Pre-refunded1,710 — 15 — 1,725 
Total obligations of U.S. states, municipalities and political subdivisions32,095 — 145 2,207 30,033 
Debt securities issued by foreign governments1,051 — — 41 1,010 
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
3,024 — 20 180 2,864 
Corporate and all other bonds35,040 4 71 2,452 32,655 
Total$77,827 $4 $254 $5,163 $72,914 

11
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
3.    INVESTMENTS, Continued
 Amortized CostAllowance for Expected Credit LossesGross UnrealizedFair Value
(at December 31, 2022, in millions)GainsLosses
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities
$5,798 $— $3 $363 $5,438 
Obligations of U.S. states, municipalities and political subdivisions: 
Local general obligation19,615 — 33 1,825 17,823 
Revenue11,076 — 29 907 10,198 
State general obligation1,104 — 3 88 1,019 
Pre-refunded2,323 — 17 1 2,339 
Total obligations of U.S. states, municipalities and political subdivisions34,118 — 82 2,821 31,379 
Debt securities issued by foreign governments1,049 — — 55 994 
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
2,178 — 13 200 1,991 
Corporate and all other bonds34,237 3 37 2,913 31,358 
Total$77,380 $3 $135 $6,352 $71,160 
 
Pre-refunded bonds of $1.73 billion and $2.34 billion at March 31, 2023 and December 31, 2022, 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 $2.36 billion and $1.04 billion during the three months ended March 31, 2023 and 2022, respectively. Gross gains of $17 million and $5 million and gross losses of $27 million and $2 million were realized on those sales during the three months ended March 31, 2023 and 2022, respectively.
 
Equity Securities
 
The cost and fair value of investments in equity securities were as follows:
  
(at March 31, 2023, in millions)CostGross GainsGross LossesFair Value
Common stock$549 $79 $25 $603 
Non-redeemable preferred stock43 3 — 46 
Total$592 $82 $25 $649 

 
(at December 31, 2022, in millions)CostGross GainsGross LossesFair Value
Common stock$706 $89 $32 $763 
Non-redeemable preferred stock41 3 — 44 
Total$747 $92 $32 $807 
 
For the three months ended March 31, 2023 and 2022, the Company recognized $17 million and $(14) million of net gains (losses) on equity securities still held as of March 31, 2023 and 2022, respectively.

12
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 March 31, 2023 and December 31, 2022, 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 2022 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 2022 Annual Report to determine whether a credit loss impairment exists.

 Less than 12 months12 months or longerTotal
(at March 31, 2023, 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
$2,056 $29 $1,969 $254 $4,025 $283 
Obligations of U.S. states, municipalities and political subdivisions7,701 182 10,534 2,025 18,235 2,207 
Debt securities issued by foreign governments
284 3 668 38 952 41 
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
875 27 1,081 153 1,956 180 
Corporate and all other bonds14,709 441 15,098 2,011 29,807 2,452 
Total $25,625 $682 $29,350 $4,481 $54,975 $5,163 
 
 Less than 12 months12 months or longerTotal
(at December 31, 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
$2,835 $100 $1,679  $263 $4,514 $363 
Obligations of U.S. states, municipalities and political subdivisions19,251 1,975 3,134  846 22,385 2,821 
Debt securities issued by foreign governments
604 22 367  33 971 55 
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
1,414 128 316  72 1,730 200 
Corporate and all other bonds24,080 1,635 6,096  1,278 30,176 2,913 
Total $48,184 $3,860 $11,592  $2,492 $59,776 $6,352 
 
13
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
3.    INVESTMENTS, Continued
The following tables summarize, for all fixed maturities reported at fair value for which fair value was less than 80% of amortized cost at March 31, 2023 and December 31, 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 March 31, 2023, in millions)3 months or lessGreater than 3 months, 6 months or lessGreater than 6 months, 12 months or lessGreater than 12 monthsTotal
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 subdivisions115 1 617 185 918 
Debt securities issued by foreign governments
— — — — — 
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
35 — — — 35 
Corporate and all other bonds103 1 84 — 188 
Total$253 $2 $701 $185 $1,141 


 Period For Which Fair Value is Less Than 80% of Amortized Cost
(at December 31, 2022, in millions)3 months or lessGreater than 3 months, 6 months or lessGreater than 6 months, 12 months or lessGreater than 12 monthsTotal
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 subdivisions81 776 643 — 1,500 
Debt securities issued by foreign governments
1 — — — 1 
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
4 48 — — 52 
Corporate and all other bonds89 526 8 — 623 
Total$175 $1,350 $651 $— $2,176 

Recent increases in interest rates resulted in the gross unrealized investment losses disclosed in the table above; however, the net unrealized loss is considered temporary in nature as the decrease in value is not due to credit impairments and there is no impact on expected contractual cash flows from fixed maturities.
 
14
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
3.    INVESTMENTS, Continued
Impairment Charges
 
The following table presents 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)March 31, 2023 March 31, 2022
Balance, beginning of period$3 $3 
Additions for expected credit losses on securities where no credit losses were previously recognized
— — 
Additions for expected credit losses on securities where credit losses were previously recognized1 1 
Reductions due to sales/defaults of credit-impaired securities
— — 
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$4 $4 

Total net impairment charges, including credit impairments, reported in net realized investment gains (losses) in the consolidated statement of income, were $1 million for both the three months ended March 31, 2023 and 2022. Credit losses related to the fixed maturity portfolio for the three months ended March 31, 2023 and 2022 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.
 
15
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 March 31, 2023 and December 31, 2022.
 
While the vast majority of the Company’s fixed maturities are included in Level 2, the Company holds a number of 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 $193 million and $371 million for these investments at March 31, 2023 and December 31, 2022, 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 2022 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 March 31, 2023, in millions)TotalLevel 1Level 2Level 3
Invested assets:    
Fixed maturities    
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities
$6,352 $6,352 $— $— 
Obligations of U.S. states, municipalities and political subdivisions30,033 — 30,033 — 
Debt securities issued by foreign governments1,010 — 1,010 — 
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
2,864 — 2,864 — 
Corporate and all other bonds32,655 9 32,371 275 
Total fixed maturities72,914 6,361 66,278 275 
Equity securities    
Common stock603 438 — 165 
Non-redeemable preferred stock46 15 3 28 
Total equity securities649 453 3 193 
Other investments16 15 — 1 
Total$73,579 $6,829 $66,281 $469 

16
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
4.    FAIR VALUE MEASUREMENTS, Continued
(at December 31, 2022, in millions)TotalLevel 1Level 2Level 3
Invested assets:    
Fixed maturities    
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities
$5,438 $5,438 $— $— 
Obligations of U.S. states, municipalities and political subdivisions31,379 — 31,379 — 
Debt securities issued by foreign governments994 — 994 — 
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
1,991 — 1,991 — 
Corporate and all other bonds31,358 — 31,055 303 
Total fixed maturities71,160 5,438 65,419 303 
Equity securities    
Common stock763 418 — 345 
Non-redeemable preferred stock44 15 3 26 
Total equity securities807 433 3 371 
Other investments16 15 — 1 
Total$71,983 $5,886 $65,422 $675 
Other liabilities$2 $— $— $2 
 
There was no significant activity in Level 3 of the hierarchy during the three months ended March 31, 2023.

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 March 31, 2023, in millions)Carrying
Value		Fair
Value		Level 1Level 2Level 3
Financial assets     
Short-term securities$3,243 $3,243 $409 $2,782 $52 
Financial liabilities     
Debt$7,192 $6,787 $— $6,787 $— 
Commercial paper100 100 — 100 — 
 
(at December 31, 2022, in millions)Carrying
Value		Fair
Value		Level 1Level 2Level 3
Financial assets     
Short-term securities$3,470 $3,470 $871 $2,546 $53 
Financial liabilities     
Debt$7,192 $6,509 $— $6,509 $— 
Commercial paper100 100 — 100 — 

The Company had no material assets or liabilities that were measured at fair value on a non-recurring basis during the three months ended March 31, 2023 or the year ended December 31, 2022.


17
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

5.    ALLOWANCE FOR EXPECTED CREDIT LOSSES

Premiums Receivable

The following table presents the balances of premiums receivable, net of the allowance for expected credit losses, at March 31, 2023 and 2022, and the changes in the allowance for expected credit losses for the three months ended March 31, 2023 and 2022.
At and For the Three Months Ended March 31, 2023At and For the Three Months Ended March 31, 2022
(in millions)Premiums Receivable, Net of Allowance for Expected Credit LossesAllowance for Expected Credit LossesPremiums Receivable, Net of Allowance for Expected Credit LossesAllowance for Expected Credit Losses
 
Balance, beginning of period$8,922 $77 $8,085 $107 
Current period change for expected credit losses10 18 
Write-offs of uncollectible premiums receivable10 36 
Balance, end of period$9,483 $77 $8,593 $89 

Reinsurance Recoverables

The following table presents the balances of reinsurance recoverables, net of the allowance for estimated uncollectible reinsurance, at March 31, 2023 and 2022, and the changes in the allowance for estimated uncollectible reinsurance for the three
months ended March 31, 2023 and 2022.

At and For the Three Months Ended March 31, 2023At and For the Three Months Ended March 31, 2022
(in millions)Reinsurance Recoverables, Net of Allowance for Estimated Uncollectible ReinsuranceAllowance for Estimated Uncollectible ReinsuranceReinsurance Recoverables, Net of Allowance for Estimated Uncollectible ReinsuranceAllowance for Estimated Uncollectible Reinsurance
 
Balance, beginning of period$8,063 $132 $8,452 $141 
Current period change for estimated uncollectible reinsurance(1)(6)
Write-offs of uncollectible reinsurance recoverables— — 
Balance, end of period$8,091 $131 $8,734 $135 

Of the total reinsurance recoverables at March 31, 2023, $5.69 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 comprised 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.

18
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
5.    ALLOWANCE FOR EXPECTED CREDIT LOSSES, Continued
Contractholder Receivables

The following table presents the balances of contractholder receivables, net of the allowance for expected credit losses, at March 31, 2023 and 2022, and the changes in the allowance for expected credit losses for the three months ended March 31, 2023 and 2022.
At and For the Three Months Ended March 31, 2023At and For the Three Months Ended March 31, 2022
(in millions)Contractholder Receivables, Net of Allowance for Expected Credit LossesAllowance for Expected Credit LossesContractholder Receivables, Net of Allowance for Expected Credit LossesAllowance for Expected Credit Losses
 
Balance, beginning of period$3,579 $17 $3,890 $21 
Current period change for expected credit losses2 (2)
Write-offs of uncollectible contractholder receivables— — 
Balance, end of period$3,598 $19 $3,901 $19 

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)March 31,
2023		December 31,
2022
Business Insurance$2,572 $2,565 
Bond & Specialty Insurance550 550 
Personal Insurance811 811 
Other26 26 
Total$3,959 $3,952 
Other Intangible Assets
 
The following tables present a summary of the Company’s other intangible assets by major asset class.
(at March 31, 2023, in millions)Gross
Carrying
Amount		Accumulated
Amortization		Net
Subject to amortization
Customer-related$97 $50 $47 
Contract-based (1)
204 192 12 
Total subject to amortization301 242 59 
Not subject to amortization226 — 226 
Total$527 $242 $285 
19
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

6.    GOODWILL AND OTHER INTANGIBLE ASSETS, Continued
 
(at December 31, 2022, in millions)Gross
Carrying
Amount		Accumulated
Amortization		Net
Subject to amortization
Customer-related$96 $48 $48 
Contract-based (1)
204 191 13 
Total subject to amortization300 239 61 
Not subject to amortization226 — 226 
Total$526 $239 $287 
 _________________________________________________________
(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.

7.    INSURANCE CLAIM RESERVES

Claims and claim adjustment expense reserves were as follows:
(in millions)March 31,
2023		December 31,
2022
Property-casualty$59,058 $58,643 
Accident and health6 6 
Total$59,064 $58,649 
 
20
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
7.    INSURANCE CLAIM RESERVES, Continued
The following table presents a reconciliation of beginning and ending property casualty reserve balances for claims and claim adjustment expenses:
Three Months Ended March 31,
(in millions)20232022
Claims and claim adjustment expense reserves at beginning of year$58,643 $56,897 
Less reinsurance recoverables on unpaid losses7,790 8,209 
Net reserves at beginning of year50,853 48,688 
Estimated claims and claim adjustment expenses for claims arising in the current year6,025 5,133 
Estimated decrease in claims and claim adjustment expenses for
 claims arising in prior years
(90)(114)
Total increases5,935 5,019 
Claims and claim adjustment expense payments for claims arising in:  
Current year1,177 1,074 
Prior years4,382 3,498 
Total payments5,559 4,572 
Unrealized foreign exchange (gain) loss28 (13)
Net reserves at end of period51,257 49,122 
Plus reinsurance recoverables on unpaid losses7,801 8,441 
Claims and claim adjustment expense reserves at end of period$59,058 $57,563 
 
Gross claims and claim adjustment expense reserves at March 31, 2023 increased by $415 million from December 31, 2022, 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 three months of 2023, partially offset by (iv) claim payments made during the first three months of 2023 and (v) net favorable prior year reserve development.
 
Reinsurance recoverables on unpaid losses at March 31, 2023 increased by $11 million from December 31, 2022.

Prior Year Reserve Development
 
The following disclosures regarding reserve development are on a “net of reinsurance” basis.
 
For the three months ended March 31, 2023 and 2022, estimated claims and claim adjustment expenses incurred included $90 million and $114 million, respectively, of net favorable development for claims arising in prior years, including $105 million and $153 million, respectively, of net favorable prior year reserve development, and $11 million and $12 million, respectively, of accretion of discount that impacted the Company’s results of operations.

Business Insurance. Net favorable prior year reserve development in the first quarter of 2023 totaled $19 million, primarily driven by better than expected loss experience in the domestic operations’ workers’ compensation product line for multiple accident years, partially offset by higher than expected loss experience in the general liability product line for excess coverages for multiple accident years. Net favorable prior year reserve development in the first quarter of 2022 totaled $113 million, primarily driven by better than expected loss experience in the domestic operations’ workers’ compensation product line for multiple accident years. The first quarters of 2023 and 2022 also included an increase to environmental reserves.

Bond & Specialty Insurance.  Net favorable prior year reserve development in the first quarter of 2023 totaled $58 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 first quarter of 2022 totaled $35 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 domestic operations’ general liability product line for management liability coverages for multiple accident years.

21
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
7.    INSURANCE CLAIM RESERVES, Continued
Personal Insurance.  Net favorable prior year reserve development in the first quarter of 2023 totaled $28 million, primarily driven by better than expected loss experience in the domestic operations’ homeowners and other product line for recent accident years. Net favorable prior year reserve development in the first quarter of 2022 totaled $5 million.

8.    OTHER COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
 
The following table presents the changes in the Company’s accumulated other comprehensive income (loss) (AOCI) for the three months ended March 31, 2023.
Changes in Net Unrealized Gains (Losses) on Investment Securities
(in millions)Having No Credit Losses Recognized in the Consolidated Statement of IncomeHaving Credit 
Losses Recognized 
in the Consolidated
Statement of 
Income		Net Benefit Plan Assets and Obligations Recognized in Shareholders’ EquityNet Unrealized Foreign Currency TranslationTotal Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2022$(5,077)$179 $(542)$(1,005)$(6,445)
Other comprehensive income (loss) (OCI) before reclassifications, net of tax1,021 1 31 1,053 
Amounts reclassified from AOCI, net of tax9 — (3)— 6 
Net OCI, current period1,030 — (2)31 1,059 
Balance, March 31, 2023$(4,047)$179 $(544)$(974)$(5,386)
22
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
March 31,
(in millions)20232022
Changes in net unrealized gains (losses) on investment securities:  
Having no credit losses recognized in the consolidated statement of income$1,308 $(4,829)
Income tax expense (benefit)278 (1,024)
Net of taxes1,030 (3,805)
Having credit losses recognized in the consolidated statement of income— (1)
Income tax benefit— — 
Net of taxes— (1)
Net changes in benefit plan assets and obligations(3)11 
Income tax expense (benefit)(1)2 
Net of taxes(2)9 
Net changes in unrealized foreign currency translation37 2 
Income tax expense6 — 
Net of taxes31 2 
Total other comprehensive income (loss)1,342 (4,817)
Total income tax expense (benefit)283 (1,022)
Total other comprehensive income (loss), net of taxes$1,059 $(3,795)
23
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
March 31,
(in millions)20232022
Reclassification adjustments related to unrealized gains (losses) on investment securities:
Having no credit losses recognized in the consolidated statement of income (1)
$11 $(2)
Income tax (expense) benefit (2)
2 (1)
Net of taxes9 (1)
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 (benefit) (3)
(1)4 
General and administrative expenses (benefit) (3)
(2)6 
Total(3)10 
Income tax benefit (2)
— 2 
Net of taxes(3)8 
Reclassification adjustment related to foreign currency translation (1)
— — 
Income tax benefit (2)
— — 
Net of taxes— — 
Total reclassifications8 8 
Total income tax benefit2 1 
Total reclassifications, net of taxes$6 $7 
_________________________________________________________
(1)(Increases) decreases net realized investment gains (losses) on the consolidated statement of income.
(2)(Increases) decreases income tax expense (benefit) on the consolidated statement of income.
(3)Increases (decreases) expenses on the consolidated statement of income.

9.     COMMON SHARE REPURCHASES
 
During the three months ended March 31, 2023, the Company repurchased 2.2 million common shares under its share repurchase authorizations for total cost of $400 million. The average cost per share repurchased was $183.26.  In addition, the Company acquired 0.3 million common shares for a total cost of $62 million during the three months ended March 31, 2023 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. Included in the cost of treasury stock acquired pursuant to common share repurchases is the 1% excise tax imposed as part of the Inflation Reduction Act. On April 19, 2023, the Board of Directors approved a share repurchase authorization that added an additional $5.0 billion of repurchase capacity to the $1.60 billion of capacity remaining at March 31, 2023.



24

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
10.     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
March 31,
(in millions, except per share amounts)20232022
Basic and Diluted
Net income, as reported$975 $1,018 
Participating share-based awards — allocated income(7)(7)
Net income available to common shareholders — basic and diluted$968 $1,011 
Common Shares
Basic
Weighted average shares outstanding231.7 240.9 
Diluted
Weighted average shares outstanding231.7 240.9 
Weighted average effects of dilutive securities — stock options and performance shares
2.7 2.8 
Total234.4 243.7 
Net Income per Common Share
Basic$4.18 $4.20 
Diluted$4.13 $4.15 

11.      SHARE-BASED INCENTIVE COMPENSATION

The following information relates to fully vested stock option awards at March 31, 2023:
                                           Stock OptionsNumberWeighted
Average
Exercise
Price		Weighted
Average
Contractual
Life
Remaining		Aggregate
Intrinsic
Value
($ in millions)
Vested at end of period (1)
7,603,711 $137.41 6.2 years$269 
Exercisable at end of period5,519,783 $127.94 5.3 years$240 
_________________________________________________________
(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 $69 million and $59 million for the three months ended March 31, 2023 and 2022, respectively. The related tax benefits recognized in earnings were $11 million and $10 million for the three months ended March 31, 2023 and 2022, respectively.

The total unrecognized compensation cost related to all nonvested share-based incentive compensation awards at March 31, 2023 was $324 million, which is expected to be recognized over a weighted-average period of 2.2 years.

25

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

12.    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 March 31, 2023 and 2022.
 Pension PlansPostretirement Benefit Plans
(for the three months ended March 31, in millions)2023202220232022
Net Periodic Benefit Cost (Benefit):    
Service cost$27 $36 $— $— 
Non-service cost (benefit):    
Interest cost on benefit obligation$44 $25 $1 $1 
Expected return on plan assets(78)(74)— — 
Amortization of unrecognized:
Prior service benefit— — (1)(1)
Net actuarial (gain) loss — 12 (2)(1)
Total non-service cost (benefit)(34)(37)(2)(1)
Net periodic benefit cost (benefit)$(7)$(1)$(2)$(1)
 
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 March 31, 2023 and 2022.
 
 Pension PlansPostretirement Benefit Plans
(for the three months ended March 31, in millions)2023202220232022
Service Cost:    
Claims and claim adjustment expenses$11 $15 $— $— 
General and administrative expenses16 21 — — 
Total service cost27 36 — — 
Non-Service Cost (Benefit):    
Claims and claim adjustment expenses(14)(15)(1)— 
General and administrative expenses(20)(22)(1)(1)
Total non-service cost (benefit)(34)(37)(2)(1)
Net periodic benefit cost (benefit)$(7)$(1)$(2)$(1)

13.    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.

26
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
13.                LEASES, Continued
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
March 31,
(in millions)20232022
Lease cost
Operating leases$19 $21 
Short-term leases (1)
1 — 
Lease expense20 21 
Less: sublease income (2)
— — 
Net lease cost$20 $21 
Other information on operating leases
Cash payments to settle a lease liability reported in cash flows
$21 $24 
Right-of-use assets obtained in exchange for new lease liabilities$10 $2 
Weighted average discount rate2.44 %2.23 %
Weighted average remaining lease term4.4 years4.8 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.

14.    CONTINGENCIES, COMMITMENTS AND GUARANTEES
 
Contingencies
 
The major pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or to which any of the Company’s properties is subject are described below.
 
Asbestos and Environmental Claims and Litigation
 
In the ordinary course of its insurance business, the Company has received and continues to receive claims for insurance arising under policies issued by the Company asserting alleged injuries and damages from asbestos- and environmental-related exposures that are the subject of related coverage litigation. The Company is defending asbestos- and environmental-related litigation vigorously and believes that it has meritorious defenses; however, the outcomes of these disputes are uncertain. In this regard, the Company employs dedicated specialists and comprehensive resolution strategies to manage asbestos and environmental loss exposure, including settling litigation under appropriate circumstances. Currently, it is not possible to predict legal outcomes and their impact on 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.
27
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
14.    CONTINGENCIES, COMMITMENTS AND GUARANTEES, Continued
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 $1.77 billion and $1.80 billion at March 31, 2023 and December 31, 2022, 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 March 31, 2023.
 
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 March 31, 2023, all of which is indemnified by a third party.  For more information regarding the Company’s guarantees, see note 17 of the notes to the consolidated financial statements in the Company’s 2022 Annual Report.

28

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
 
2023 First Quarter Consolidated Results of Operations
 
•Net income of $975 million, or $4.18 per share basic and $4.13 per share diluted
•Net earned premiums of $8.85 billion
•Catastrophe losses of $535 million ($422 million after-tax)
•Net favorable prior year reserve development of $105 million ($83 million after-tax)
•Combined ratio of 95.4%
•Net investment income of $663 million ($557 million after-tax)
•One-time tax benefit of $211 million due to the expiration of the statute of limitations with respect to a tax item
•Net realized investment gains of $6 million ($5 million after-tax)
•Operating cash flows of $1.01 billion
 
2023 First Quarter Consolidated Financial Condition
 
•Total investments of $82.04 billion; fixed maturities and short-term securities comprised 93% of total investments
•Total assets of $118.35 billion
•Total debt of $7.29 billion, resulting in a debt-to-total capital ratio of 24.0% (21.3% excluding net unrealized investment losses, net of tax)
•Total capital returned to shareholders of $680 million, comprising $462 million of share repurchases and $218 million of dividends
•Shareholders’ equity of $23.05 billion
•Net unrealized investment losses of $4.91 billion ($3.87 billion after-tax)
•Book value per common share of $99.80
•Holding company liquidity of $1.55 billion

29

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

CONSOLIDATED OVERVIEW
Consolidated Results of Operations
 Three Months Ended
March 31,
(in millions, except ratio and per share amounts)20232022
Revenues  
Premiums$8,854 $8,014 
Net investment income663 637 
Fee income106 103 
Net realized investment gains (losses)6 (23)
Other revenues75 78 
Total revenues9,704 8,809 
Claims and expenses  
Claims and claim adjustment expenses5,959 5,039 
Amortization of deferred acquisition costs1,462 1,310 
General and administrative expenses1,267 1,191 
Interest expense88 87 
Total claims and expenses8,776 7,627 
Income before income taxes928 1,182 
Income tax expense (benefit)(47)164 
Net income$975 $1,018 
Net income per share  
Basic$4.18 $4.20 
Diluted$4.13 $4.15 
Combined ratio  
Loss and loss adjustment expense ratio66.7 %62.3 %
Underwriting expense ratio28.7 29.0 
Combined ratio95.4 %91.3 %
The following discussions of the Company’s net income and segment income are presented on an after-tax basis.  Discussions of the components of net income and segment income are presented on a pre-tax basis, unless otherwise noted.  Discussions of net income per common share are presented on a diluted basis.
Overview
Diluted net income per share of $4.13 in the first quarter of 2023 decreased by less than 1% from diluted net income per share of $4.15 in the same period of 2022.  Net income of $975 million in the first quarter of 2023 decreased by 4% from net income of $1.02 billion in the same period of 2022.  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 first quarter of 2023 primarily reflected the pre-tax impacts of (i) higher catastrophe losses and (ii) lower net favorable prior year reserve development, partially offset by (iii) higher underwriting margins excluding catastrophe losses and prior year reserve development (“underlying underwriting margins”), (iv) net realized investment gains compared to net realized investment losses in the first quarter of 2022 and (v) higher net investment income. Catastrophe losses in the first quarters of 2023 and 2022 were $535 million and $160 million, respectively. Net favorable prior year reserve development in the first quarters of 2023 and 2022 was $105 million and $153 million, respectively. The higher underlying underwriting margins in the first quarter of 2023 were driven by Business Insurance and Personal Insurance, partially offset by Bond & Specialty Insurance. The Company recorded an income tax benefit in the first quarter of 2023 compared with income tax expense in the same period of 2022. The change in income taxes primarily reflected a one-time tax benefit of $211 million in the first quarter of 2023 due to the expiration of the statute of limitations with respect to a tax item and the impact of the decrease in income before income taxes, partially offset by a $47 million reduction in income tax expense in the first quarter of 2022 as a result of the resolution of prior year tax matters.
30

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

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 months ended March 31, 2023 and 2022, changes in foreign currency exchange rates impacted reported line items in the statement of income by insignificant amounts.  The impact of these changes was not material to the Company’s net income or segment income for the periods reported.
Revenues
Earned Premiums
Earned premiums in the first quarter of 2023 were $8.85 billion, $840 million or 10% higher than in the same period of 2022.  In Business Insurance, earned premiums in the first quarter 2023 increased by 10% over the same period of 2022.  In Bond & Specialty Insurance, earned premiums in the first quarter of 2023 increased by 7% over the same period of 2022.  In Personal Insurance, earned premiums in the first quarter of 2023 increased by 12% over the same period of 2022.  Factors contributing to the changes in earned premiums in each segment are discussed in more detail in the segment discussions that follow.
Net Investment Income
The following table sets forth information regarding the Company’s investments.
 Three Months Ended
March 31,
(dollars in millions)20232022
Average investments (1)
$88,740 $86,345 
Pre-tax net investment income663 637 
After-tax net investment income557 539 
Average pre-tax yield (2)
3.0 %2.9 %
Average after-tax yield (2)
2.5 %2.5 %
_________________________________________________________ 
(1)Excludes net unrealized investment gains and losses and reflects cash, receivables for investment sales, payables on investment purchases and accrued investment income.
(2)Excludes net realized and net unrealized investment gains and losses.
Net investment income in the first quarter of 2023 was $663 million, $26 million or 4% higher than in the same period of 2022.  Net investment income from fixed maturity investments in the first quarter 2023 was $575 million, $70 million higher than in the same period of 2022. The increase primarily resulted from higher long-term average yields and a higher average level of fixed maturity investments. Net investment income from short-term securities in the first quarter of 2023 was $47 million, $45 million higher than in the same period of 2022, primarily resulting from higher short-term average yields. The Company’s remaining investment portfolios had net investment income of $53 million in the first quarter of 2023, $89 million lower than in the same period of 2022. The decline in net investment income from these portfolios primarily reflected lower private equity and real estate partnerships returns. 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 first quarter of 2023 was $106 million, $3 million higher than in the same period of 2022. 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.
31

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

Net Realized Investment Gains (Losses)
The following table sets forth information regarding the Company’s net realized investment gains (losses).
Three Months Ended
March 31,
(in millions)20232022
Impairment gains (losses):
Fixed maturities$(1)$(1)
Net realized investment gains (losses) on equity securities still held
17 (14)
Other net realized investment gains (losses), including from sales(10)(8)
Total$6 $(23)
Net realized investment gains on equity securities still held were $17 million in the first quarter of 2023, driven by the impact of changes in fair value attributable to favorable equity markets. Net realized investment losses on equity securities still held were $14 million in the first quarter of 2022, driven by the impact of changes in fair value attributable to unfavorable equity markets.
Other Revenues
Other revenues in the first quarter of 2023 were $75 million, $3 million lower than in the same period of 2022. Other revenues include 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 first quarter of 2023 were $5.96 billion, $920 million or 18% higher than in the same period of 2022, primarily reflecting the impacts of (i) higher business volumes, (ii) higher catastrophe losses, (iii) elevated losses in the automobile product line in Personal Insurance, (iv) lower net favorable prior year reserve development and (v) loss activity related to the disruption in the banking sector in Bond & Specialty Insurance, partially offset by (vi) property losses that were lower than a somewhat elevated level in the prior year quarter in Business Insurance. Catastrophe losses in the first quarter of 2023 primarily resulted from severe wind and hail storms in multiple states. Catastrophe losses in the first quarter of 2022 primarily resulted from winter storms and wind storms in several regions of the United States.
Factors contributing to net favorable prior year reserve development during the first quarters of 2023 and 2022 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 ended March 31, 2023 and 2022, the amount of net unfavorable (favorable) prior year reserve development recognized in the three months ended March 31, 2023 and 2022 for significant catastrophes that occurred in 2022 and 2021, and the estimate of ultimate losses for those catastrophes at March 31, 2023 and December 31, 2022. 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 2023 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 2022 Annual Report.
32

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

 Losses Incurred/Unfavorable (Favorable)
Prior Year Reserve Development		  
 Three Months Ended
March 31,
 Estimated Ultimate Losses
(in millions, pre-tax and net of reinsurance) (1)
20232022March 31,
2023		December 31, 2022
2021
PCS Serial Number:
15 — Winter storms (18)(3)197 215
17 — Winter storms(21)— 462 483
29 — Severe wind storms— (1)93 93
60 — Hurricane Ida19 (20)355 336
76 — Tornado outbreak(3)2 110 113
2022
PCS Serial Number:
33 — Severe wind and hail storms(7)n/a130 137
35 — Severe wind and hail storms(2)n/a182 184
43 — Severe wind and hail storms(10)n/a112 122
61 — Hurricane Ian(53)n/a174 227
73 — Winter storm143 n/a655 512
2023
PCS Serial Number:
25 — Severe wind and hail storms148 n/a148 n/a
32 — Severe wind and hail storms119 n/a119 n/a
_________________________________________________________
n/a: not applicable.
(1) Amounts are reported pre-tax and net of recoveries under all applicable reinsurance treaties, except for the Company’s 2022 and 2021 Underlying Property Aggregate Catastrophe Excess-of-Loss Treaties, the terms of which are described in “Part I—Item 1—Business” in the Company’s 2022 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 and the period January 1, 2021 through and including December 31, 2021. 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.
PCS Catastrophe Event 33 occurred from March 30, 2023 through April 1, 2023. Estimated losses incurred through March 31, 2023 were $96 million and are not disclosed in the table above. The estimated losses incurred subsequent to March 31, 2023 related to Event 33 will be reported in the Company’s results for the quarter ending June 30, 2023 and will be disclosed in the table above (including in the Estimated Ultimate Losses related to Event 33).
Amortization of Deferred Acquisition Costs
Amortization of deferred acquisition costs in the first quarter of 2023 was $1.46 billion, $152 million or 12% higher than in the same period of 2022, generally consistent with the increase 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 first quarter of 2023 were $1.27 billion, $76 million or 6% higher than in the same period of 2022, primarily reflecting 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 first quarter of 2023 was $88 million, compared with $87 million in the same period of 2022.
33

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

Income Tax Expense (Benefit)
The income tax benefit in the first quarter of 2023 was $47 million, compared with income tax expense of $164 million in the same period of 2022. The change in income taxes primarily reflected the one-time tax benefit of $211 million in the first quarter of 2023 due to the expiration of the statute of limitations with respect to a tax item and the impact of the $254 million decrease in income before income taxes in the first quarter of 2023, partially offset by 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 (5)% and 14% in the first quarters of 2023 and 2022, respectively.  The effective tax rates were lower than the statutory rate of 21% in all periods. The effective tax rate for the first quarter of 2023 was reduced by the impact of the one-time tax benefit discussed above, and the effective tax rate for the first quarter of 2022 was reduced by the impact of the resolution of prior year tax matters discussed above. The effective tax rate for both periods also reflected the impact of tax-exempt investment income on the calculation of the Company’s income tax provision.
Combined Ratio
The combined ratio of 95.4% in the first quarter of 2023 was 4.1 points higher than the combined ratio of 91.3% in the same period of 2022.  The loss and loss adjustment expense ratio of 66.7% in the first quarter of 2023 was 4.4 points higher than the loss and loss adjustment expense ratio of 62.3% in the same period of 2022.  The underwriting expense ratio of 28.7% in the first quarter of 2023 was 0.3 points lower than the underwriting expense ratio of 29.0% in the same period of 2022.
Catastrophe losses in the first quarters of 2023 and 2022 accounted for 6.0 points and 2.0 points, respectively, of the combined ratio. Net favorable prior year reserve development in the first quarters of 2023 and 2022 provided 1.2 points and 1.9 points of benefit, respectively, to the combined ratio. The combined ratio excluding prior year reserve development and catastrophe losses (“underlying combined ratio”) in the first quarter of 2023 was 0.6 points lower than the 2022 ratio on the same basis, primarily reflecting the impacts of (i) the benefit of earned pricing, (ii) property losses that were lower than a somewhat elevated level in the prior year quarter in Business Insurance and (iii) a lower expense ratio, partially offset by (iv) elevated losses in the automobile product line in Personal Insurance and (v) loss activity related to the disruption in the banking sector in Bond & Specialty Insurance.
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
March 31,
(in millions)20232022
Business Insurance$5,828 $5,148 
Bond & Specialty Insurance1,010 1,009 
Personal Insurance3,509 3,126 
Total$10,347 $9,283 
 Net Written Premiums
 Three Months Ended
March 31,
(in millions)20232022
Business Insurance$5,157 $4,502 
Bond & Specialty Insurance886 882 
Personal Insurance3,353 2,983 
Total$9,396 $8,367 
Gross and net written premiums in the first quarter of 2023 increased by 11% and 12%, respectively, over the same period of 2022. 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.
34

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
March 31,
(dollars in millions)20232022
Revenues  
Earned premiums$4,477 $4,071 
Net investment income473 468 
Fee income99 96 
Other revenues47 53 
Total revenues5,096 4,688 
Total claims and expenses4,383 3,879 
Segment income before income taxes713 809 
Income tax expense (benefit)(43)140 
Segment income$756 $669 
Loss and loss adjustment expense ratio63.8 %60.7 %
Underwriting expense ratio29.8 30.2 
Combined ratio93.6 %90.9 %
Overview
Segment income in the first quarter of 2023 was $756 million, $87 million or 13% higher than segment income of $669 million in the same period of 2022. The decrease in segment income before income taxes primarily reflected the pre-tax impacts of (i) higher catastrophe losses and (ii) lower net favorable prior year reserve development, partially offset by (iii) higher underlying underwriting margins. Catastrophe losses in the first quarters of 2023 and 2022 were $199 million and $79 million, respectively. Net favorable prior year reserve development in the first quarters of 2023 and 2022 was $19 million and $113 million, respectively. The higher underlying underwriting margins primarily reflected the impacts of (i) higher business volumes, (ii) property losses that were lower than a somewhat elevated level in the prior year quarter and (iii) the benefit of earned pricing. The segment recorded an income tax benefit in the first quarter of 2023 compared with income tax expense in the same period of 2022. The change in income taxes primarily reflected a one-time tax benefit of $171 million in the first quarter of 2023 due to the expiration of the statute of limitations with respect to a tax item and the impact of the decrease in segment income before income taxes.
Revenues
Earned Premiums
Earned premiums in the first quarter of 2023 were $4.48 billion, $406 million or 10% higher than in the same period of 2022, primarily reflecting the increase in net written premiums over the preceding twelve months.
Net Investment Income
Net investment income in the first quarter of 2023 was $473 million, $5 million or 1% higher than in the same period of 2022.  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 increase in the Company’s consolidated net investment income in the first quarter of 2023 compared with the same period of 2022. In addition, refer to note 2 of the notes to the consolidated financial statements in the Company’s 2022 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 first quarter of 2023 was $99 million, $3 million or 3% higher than in the same period of 2022.
35

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

Other Revenues
Other revenues in the first quarter of 2023 were $47 million, $6 million lower than in the same period of 2022. Other revenues include 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 first quarter of 2023 were $2.91 billion, $393 million or 16% higher than in the same period of 2022, primarily reflecting the impacts of (i) higher business volumes, (ii) higher catastrophe losses, (iii) lower net favorable prior year reserve development and (iv) loss cost trends, partially offset by (v) property losses that were lower than a somewhat elevated level in the prior year quarter.
Factors contributing to net favorable prior year reserve development during the first quarters of 2023 and 2022 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 first quarter of 2023 was $742 million, $74 million or 11% higher than the same period of 2022, generally consistent with the increase in earned premiums.
General and Administrative Expenses
General and administrative expenses in the first quarter of 2023 were $734 million, $37 million or 5% higher than in the same period of 2022, primarily in support of business growth.
Income Tax Expense (Benefit)
The income tax benefit in the first quarter of 2023 was $43 million, compared with income tax expense of $140 million in the same period of 2022. The change in income taxes primarily reflected the one-time tax benefit of $171 million in the first quarter of 2023 due to the expiration of the statute of limitations with respect to a tax item and the impact of the $96 million decrease in income before income taxes, partially offset by a $3 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 93.6% in the first quarter of 2023 was 2.7 points higher than the combined ratio of 90.9% in the same period of 2022.  The loss and loss adjustment expense ratio of 63.8% in the first quarter of 2023 was 3.1 points higher than the loss and loss adjustment expense ratio of 60.7% in the same period of 2022. The underwriting expense ratio of 29.8% in the first quarter of 2023 was 0.4 points lower than the underwriting expense ratio of 30.2% in the same period of 2022.
Catastrophe losses in the first quarters of 2023 and 2022 accounted for 4.4 points and 1.9 points, respectively, of the combined ratio.  Net favorable prior year reserve development in the first quarters of 2023 and 2022 provided 0.4 points and 2.8 points of benefit, respectively, to the combined ratio. The underlying combined ratio in the first quarter of 2023 was 2.2 points lower than the 2022 ratio on the same basis, primarily reflecting the impacts of (i) property losses that were lower than a somewhat elevated level in the prior year quarter and (ii) the benefit of earned pricing.
36

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
March 31,
(in millions)20232022
Domestic:  
Select Accounts$924 $837 
Middle Market3,129 2,795 
National Accounts493 510 
National Property and Other747 638 
Total Domestic5,293 4,780 
International535 368 
Total Business Insurance$5,828 $5,148 
 Net Written Premiums
 Three Months Ended
March 31,
(in millions)20232022
Domestic:  
Select Accounts$908 $819 
Middle Market2,926 2,616 
National Accounts294 303 
National Property and Other590 497 
Total Domestic4,718 4,235 
International439 267 
Total Business Insurance$5,157 $4,502 
Gross and net written premiums in the first quarter of 2023 increased by 13% and 15%, respectively, over the same period of 2022.
Select Accounts.  Net written premiums of $908 million in the first quarter of 2023 increased by 11% over the same period of 2022. Retention rates remained strong in the first quarter of 2023 and increased slightly over the same period of 2022. Renewal premium changes in the first quarter of 2023 remained positive and were higher than in the same period of 2022.  New business premiums in the first quarter of 2023 increased over the same period of 2022.
Middle Market.  Net written premiums of $2.93 billion in the first quarter of 2023 increased by 12% over the same period of 2022.  Retention rates remained strong in the first quarter of 2023 and increased slightly over the same period of 2022.  Renewal premium changes in the first quarter of 2023 remained positive and were comparable with the same period of 2022. New business premiums in the first quarter of 2023 increased over the same period of 2022.
National Accounts.  Net written premiums of $294 million in the first quarter of 2023 decreased by 3% from the same period of 2022. Retention rates remained strong in the first quarter of 2023 but were lower than the same period of 2022. Renewal premium changes in the first quarter of 2023 were positive and higher than in the same period of 2022. New business premiums in the first quarter of 2023 decreased from the same period of 2022.
National Property and Other.  Net written premiums of $590 million in the first quarter of 2023 increased by 19% over the same period of 2022.  Retention rates remained strong in the first quarter of 2023 and increased over the same period of 2022.  Renewal premium changes in the first quarter of 2023 remained positive and were higher than in the same period of 2022. New business premiums in the first quarter of 2023 increased over the same period of 2022.
International.  Net written premiums of $439 million in the first quarter of 2023 increased by 64% over the same period of 2022, primarily driven by the impact of the Company’s quota share reinsurance agreement with subsidiaries of Fidelis
37

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

Insurance Holdings Limited (Fidelis) effective January 1, 2023, partially offset by the impact of changes in foreign currency exchange rates.

Bond & Specialty Insurance
Results of Bond & Specialty Insurance were as follows:
 Three Months Ended
March 31,
(dollars in millions)20232022
Revenues  
Earned premiums$875 $820 
Net investment income73 59 
Other revenues5 4 
Total revenues953 883 
Total claims and expenses705 644 
Segment income before income taxes248 239 
Income tax expense41 22 
Segment income$207 $217 
Loss and loss adjustment expense ratio43.0 %42.8 %
Underwriting expense ratio37.0 35.2 
Combined ratio80.0 %78.0 %
Overview
Segment income in the first quarter of 2023 was $207 million, $10 million or 5% lower than segment income of $217 million in the same period of 2022. The increase in segment income before income taxes primarily reflected the pre-tax impacts of (i) higher net favorable prior year reserve development and (ii) higher net investment income, partially offset by (iii) lower underlying underwriting margins. Net favorable prior year reserve development in the first quarters of 2023 and 2022 was $58 million and $35 million, respectively. Catastrophe losses in the first quarters of 2023 and 2022 were $5 million and $1 million, respectively. The lower underlying underwriting margins primarily reflected the impacts of (i) loss activity related to the disruption in the banking sector and (ii) higher general and administrative expenses, partially offset by (iii) higher business volumes and (iv) the benefit of earned pricing. Income tax expense in the first quarter of 2023 was higher than in the same period of 2022, primarily reflecting 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 and the impact of the increase in segment income before income taxes, partially offset by a one-time tax benefit of $9 million in the first quarter of 2023 due to the expiration of the statute of limitations with respect to a tax item.
Revenues
Earned Premiums
Earned premiums in the first quarter of 2023 were $875 million, $55 million or 7% higher than in the same period of 2022, primarily reflecting increases in net written premiums in prior quarters, including the impact of longer duration surety bonds and multi-year management liability policies.
Net Investment Income
Net investment income in the first quarter of 2023 was $73 million, $14 million or 24% higher than in the same period of 2022. 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 increase in the Company’s consolidated net investment income in the first quarter of 2023 compared with the same period of 2022. In addition, refer to note 2 of the notes to the consolidated financial statements in the Company’s 2022 Annual Report for a discussion of the Company’s net investment income allocation methodology.
38

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 first quarter of 2023 were $380 million, $26 million or 7% higher than in the same period of 2022, primarily reflecting the impacts of (i) higher business volumes and (ii) loss activity related to the disruption in the banking sector, partially offset by (iii) higher net favorable prior year reserve development.
Factors contributing to net favorable prior year reserve development during the first quarters of 2023 and 2022 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 first quarter of 2023 was $160 million, $11 million or 7% higher than in the same period of 2022, generally consistent with the increase in earned premiums.
General and Administrative Expenses
General and administrative expenses in the first quarter of 2023 were $165 million, $24 million or 17% higher than in the same period of 2022, primarily reflecting higher employee and technology related expenses.
Income Tax Expense
Income tax expense in the first quarter of 2023 was $41 million, $19 million or 86% higher than in the same period of 2022, primarily reflecting 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 and the impact of the $9 million increase in segment income before income taxes, partially offset by the one-time tax benefit of $9 million in the first quarter of 2023 due to the expiration of the statute of limitations with respect to a tax item.
Combined Ratio
The combined ratio of 80.0% in the first quarter of 2023 was 2.0 points higher than the combined ratio of 78.0% in the same period of 2022.  The loss and loss adjustment expense ratio of 43.0% in the first quarter of 2023 was 0.2 points higher than the loss and loss adjustment expense ratio of 42.8% in the same period of 2022. The underwriting expense ratio of 37.0% in the first quarter of 2023 was 1.8 points higher than the underwriting expense ratio of 35.2% in the same period of 2022.
Net favorable prior year reserve development in the first quarters of 2023 and 2022 provided 6.7 points and 4.3 points of benefit, respectively, to the combined ratio. Catastrophe losses in the first quarters of 2023 and 2022 accounted for 0.6 points and 0.1 points, respectively, of the combined ratio. The underlying combined ratio in the first quarter of 2023 was 3.9 points higher than the 2022 ratio on the same basis, primarily reflecting the impacts of (i) loss activity related to the disruption in the banking sector and (ii) higher general and administrative expenses, partially offset by (iii) the benefit of earned pricing.

39

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

Written Premiums
The Bond & Specialty Insurance segment’s gross and net written premiums were as follows:
 Gross Written Premiums
 Three Months Ended
March 31,
(in millions)20232022
Domestic:  
Management Liability$564 $574 
Surety303 296 
Total Domestic867 870 
International143 139 
Total Bond & Specialty Insurance$1,010 $1,009 
 Net Written Premiums
 Three Months Ended
March 31,
(in millions)20232022
Domestic:  
Management Liability$511 $505 
Surety257 257 
Total Domestic768 762 
International118 120 
Total Bond & Specialty Insurance$886 $882 
Gross and net written premiums in the first quarter of 2023 were comparable with the same period of 2022.
Domestic.  Net written premiums of $768 million in the first quarter of 2023 increased by 1% over the same period of 2022. Excluding the surety line of business, for which the following are not relevant measures, retention rates remained strong in the first quarter of 2023 and increased over the same period of 2022. Renewal premium changes in the first quarter of 2023 remained positive but were lower than in the same period of 2022. New business premiums in the first quarter of 2023 increased over the same period of 2022.
International.  Net written premiums of $118 million in the first quarter of 2023 decreased by 2% from the same period of 2022, primarily driven by the impact of changes in foreign currency exchange rates, partially offset by an increase in Canada.

40

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

Personal Insurance
Results of Personal Insurance were as follows:
 Three Months Ended
March 31,
(dollars in millions)20232022
Revenues  
Earned premiums$3,502 $3,123 
Net investment income117 110 
Fee income7 7 
Other revenues23 21 
Total revenues3,649 3,261 
Total claims and expenses3,591 3,009 
Segment income before income taxes58 252 
Income tax expense (benefit)(25)27 
Segment income$83 $225 
Loss and loss adjustment expense ratio76.3 %69.5 %
Underwriting expense ratio25.2 25.8 
Combined ratio101.5 %95.3 %
Overview
Segment income in the first quarter of 2023 was $83 million, $142 million or 63% lower than segment income of $225 million in the same period of 2022. The decrease in segment income before income taxes primarily reflected the pre-tax impacts of (i) higher catastrophe losses, partially offset by (ii) higher underlying underwriting margins and (iii) higher net favorable prior year reserve development. Catastrophe losses in the first quarters of 2023 and 2022 were $331 million and $80 million, respectively. Net favorable prior year reserve development in the first quarters of 2023 and 2022 was $28 million and $5 million, respectively. The higher underlying underwriting margins primarily reflected the impacts of (i) the benefit of earned pricing in both the automobile and homeowners and other product lines, (ii) higher business volumes and (iii) lower losses in the homeowners and other product line, partially offset by (iv) elevated losses in the automobile product line. The segment recorded an income tax benefit in the first quarter of 2023 compared with income tax expense in the same period of 2022. The change in income taxes primarily reflected the impact of the decrease in segment income before income taxes and a one-time tax benefit of $31 million in the first quarter of 2023 due to the expiration of the statute of limitations with respect to a tax item, partially offset by 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 first quarter of 2023 were $3.50 billion, $379 million or 12% higher than in the same period of 2022, primarily reflecting the increase in net written premiums over the preceding twelve months.
Net Investment Income
Net investment income in the first quarter of 2023 was $117 million, $7 million or 6% higher than in the same period of 2022. 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 increase in the Company’s consolidated net investment income in the first quarter of 2023 compared with the same period of 2022. In addition, refer to note 2 of the notes to the consolidated financial statements in the Company’s 2022 Annual Report for a discussion of the Company’s net investment income allocation methodology.
Other Revenues
Other revenues in the first quarters of 2023 and 2022 primarily consisted of installment premium charges.
41

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 first quarter of 2023 were $2.67 billion, $501 million or 23% higher than in the same period of 2022, primarily reflecting the impacts of (i) higher catastrophe losses, (ii) higher business volumes and (iii) elevated losses in the automobile product line, partially offset by (iv) lower losses in the homeowners and other product line and (v) higher net favorable prior year reserve development.
Factors contributing to net favorable prior year reserve development during the first quarter of 2023 are discussed in more detail in note 7 of the notes to the unaudited consolidated financial statements. Net favorable prior year reserve development was not significant in the first quarter of 2022.
Amortization of Deferred Acquisition Costs
Amortization of deferred acquisition costs in the first quarter of 2023 was $560 million, $67 million or 14% higher than in the same period of 2022, generally consistent with the increase in earned premiums.
General and Administrative Expenses
General and administrative expenses in the first quarter of 2023 were $359 million, $14 million or 4% higher than in the same period of 2022, primarily reflecting the impact of higher business volumes.
Income Tax Expense (Benefit)
The income tax benefit in the first quarter of 2023 was $25 million, compared with income tax expense of $27 million in the same period of 2022. The change in income taxes primarily reflected the impact of the $194 million decrease in segment income before income taxes and the one-time tax benefit of $31 million in the first quarter of 2023 due to the expiration of the statute of limitations with respect to a tax item, partially offset by 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 101.5% in the first quarter of 2023 was 6.2 points higher than the combined ratio of 95.3% in the same period of 2022.  The loss and loss adjustment expense ratio of 76.3% in the first quarter of 2023 was 6.8 points higher than the loss and loss adjustment expense ratio of 69.5% in the same period of 2022.  The underwriting expense ratio of 25.2% in the first quarter of 2023 was 0.6 points lower than the underwriting expense ratio of 25.8% in the same period of 2022.
Catastrophe losses in the first quarters of 2023 and 2022 accounted for 9.4 points and 2.6 points, respectively, of the combined ratio. Net favorable prior year reserve development in the first quarters of 2023 and 2022 provided 0.8 points and 0.1 points of benefit, respectively, to the combined ratio. The underlying combined ratio in the first quarter of 2023 was 0.1 points higher than the 2022 ratio on the same basis, primarily reflecting the impacts of (i) elevated losses in the automobile product line, largely offset by (ii) the benefit of earned pricing in both the automobile and homeowners and other product lines, (iii) lower losses in the homeowners and other product line and (iv) a lower expense ratio.

42

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
March 31,
(in millions)20232022
Domestic:  
Automobile$1,661 $1,507 
Homeowners and Other1,711 1,472 
Total Domestic3,372 2,979 
International137 147 
Total Personal Insurance$3,509 $3,126 
 Net Written Premiums
 Three Months Ended
March 31,
(in millions)20232022
Domestic:  
Automobile$1,654 $1,496 
Homeowners and Other1,565 1,344 
Total Domestic3,219 2,840 
International134 143 
Total Personal Insurance$3,353 $2,983 
Gross and net written premiums in the first quarter of 2023 both increased by 12% over the same period of 2022.
Domestic
Automobile net written premiums of $1.65 billion in the first quarter of 2023 increased by 11% over the same period of 2022. Retention rates remained strong in the first quarter of 2023 but were lower than the same period of 2022.  Renewal premium changes in the first quarter of 2023 remained positive and were higher than in the same period of 2022.  New business premiums in the first quarter of 2023 decreased from the same period of 2022.
Homeowners and Other net written premiums of $1.57 billion in the first quarter of 2023 increased by 16% over the same period of 2022.  Retention rates remained strong in the first quarter of 2023 but were lower than the same period of 2022.  Renewal premium changes in the first quarter of 2023 remained positive and were higher than in the same period of 2022.  New business premiums in the first quarter of 2023 were comparable with the same period of 2022.
For its Domestic business, Personal Insurance had approximately 9.2 million and 9.0 million active policies at March 31, 2023 and 2022, respectively.
International
International net written premiums of $134 million in the first quarter of 2023 decreased by 6% from the same period of 2022, driven by the impact of changes in foreign currency exchange rates.

For its International business, Personal Insurance had approximately 448,000 and 473,000 active policies at March 31, 2023 and 2022, respectively.
43

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

Interest Expense and Other
 Three Months Ended
March 31,
(in millions)20232022
Income (loss)$(76)$(74)
The Income (loss) for Interest Expense and Other in the first quarters of 2023 and 2022 was $(76) million and $(74) million, respectively.  Pre-tax interest expense for the first quarters of 2023 and 2022 was $88 million and $87 million, respectively. After-tax interest expense for the first quarters of 2023 and 2022 was $70 million and $69 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 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
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

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.

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 three months of 2023 and 2022 were $33 million and $36 million, respectively. Net asbestos reserves were $1.27 billion and $1.30 billion at March 31, 2023 and 2022, respectively.
 
The following table displays activity for asbestos losses and loss expenses and reserves:
(at and for the three months ended March 31, in millions)20232022
Beginning reserves:  
Gross$1,674 $1,687 
Ceded(369)(346)
Net1,305 1,341 
Incurred losses and loss expenses:  
Gross— — 
Ceded— — 
Net— — 
Paid loss and loss expenses:  
Gross54 52 
Ceded(21)(16)
Net33 36 
Foreign exchange and other:  
Gross— — 
Ceded— (1)
Net— (1)
Ending reserves:  
Gross1,620 1,635 
Ceded(348)(331)
Net$1,272 $1,304 
_________________________________________________________
See “—Uncertainty Regarding Adequacy of Asbestos and Environmental Reserves.”

45

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

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 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 $31 million and $45 million in the first three months of 2023 and 2022, respectively. Net environmental paid loss and loss expenses in the first three months of 2023 and 2022 were $25 million and $15 million, respectively. Net environmental reserves were $377 million and $351 million at March 31, 2023 and 2022, 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;
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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
 
MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

•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.

INVESTMENT PORTFOLIO
 
The Company’s invested assets at March 31, 2023 were $82.04 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 March 31, 2023 was $72.91 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 March 31, 2023 and December 31, 2022.  Below investment grade securities represented 1.3% of the total fixed maturity investment portfolio at both March 31, 2023 and December 31, 2022. The weighted average effective duration of fixed maturities and short-term securities was 4.5 (4.7 excluding short-term securities) at March 31, 2023 and 4.6 (4.8 excluding short-term securities) at December 31, 2022.

Obligations of U.S. States, Municipalities and Political Subdivisions
 
The Company’s fixed maturity investment portfolio at March 31, 2023 and December 31, 2022 included $30.03 billion and $31.38 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 March 31, 2023 and December 31, 2022 were $1.73 billion and $2.34 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 March 31, 2023 and December 31, 2022.
47

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

Mortgage-Backed Securities, Collateralized Mortgage Obligations and Pass-Through Securities
 
The Company’s fixed maturity investment portfolio at March 31, 2023 and December 31, 2022 included $2.86 billion and $1.99 billion, respectively, 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 March 31, 2023 and December 31, 2022 were $1.54 billion and $922 million, respectively, of GNMA, FNMA, FHLMC (excluding FHA project loans) and Canadian government guaranteed residential mortgage-backed pass-through securities classified as available for sale.  Also included in those totals were residential CMOs classified as available for sale with a fair value of $1.32 billion and $1.07 billion at March 31, 2023 and December 31, 2022, respectively. Approximately 42% and 40% of the Company’s CMO holdings at March 31, 2023 and December 31, 2022, respectively, were guaranteed by or fully collateralized by securities issued by GNMA, FNMA or FHLMC.  The weighted average credit rating of the $767 million and $647 million of non-guaranteed CMO holdings was “Aaa/Aal” at both March 31, 2023 and December 31, 2022. The weighted average credit rating of all of the above securities was “Aaa/Aa1” at both March 31, 2023 and December 31, 2022.  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 2022 Annual Report.
 
Equity Securities, Real Estate and Short-Term Investments
 
See note 1 of the notes to the consolidated financial statements in the Company’s 2022 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 March 31, 2023 and December 31, 2022, the carrying value of the Company’s other investments was $4.28 billion and $4.07 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.

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 2022 Annual Report.
 
The following table summarizes the composition of the Company’s reinsurance recoverables:
(in millions)March 31, 2023December 31, 2022
Gross reinsurance recoverables on paid and unpaid claims and claim adjustment expenses$3,784 $3,792 
Gross structured settlements2,784 2,802 
Mandatory pools and associations 1,654 1,601 
Gross reinsurance recoverables8,222 8,195 
Allowance for estimated uncollectible reinsurance(131)(132)
Net reinsurance recoverables$8,091 $8,063 

Net reinsurance recoverables at March 31, 2023 increased by $28 million from December 31, 2022, primarily due to an increase in mandatory pools and associations, partially offset by a decrease in gross structured settlements.
48

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

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 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 2023.

Property and casualty insurance market conditions are expected to remain competitive during the remainder of 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.

Effective January 1, 2023, the Company entered into a quota share reinsurance agreement with subsidiaries of Fidelis Insurance Holdings Limited (Fidelis) pursuant to which the Company assumes 20% of the business written by Fidelis during 2023, subject to a loss ratio cap. The Company’s portion of net written premiums from Fidelis is expected to be approximately $550 million to $600 million for the full year and will be reported as part of the International results of Business Insurance. The Company also has a minority investment in Fidelis.

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, 2022, the Company experienced approximately 41% 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.

49

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

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 2022 Annual Report.

The Company’s results of operations may be impacted by a number of other factors, including an economic slowdown, a recession, financial market volatility, disruption in the banking sector, supply chain disruptions, monetary and fiscal policy measures (including future actions or inactions of the United States government related to the “debt-ceiling”), 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.

Investment Portfolio.  The Company expects to continue to focus its investment strategy on maintaining a high-quality investment portfolio and a relatively short average effective duration.  The weighted average effective duration of fixed maturities and short-term securities was 4.5 (4.7 excluding short-term securities) at March 31, 2023.  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 March 31, 2023, 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 30% 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 the impact of expected higher reinvestment yields on fixed income investments and slightly higher levels of fixed income investments, the Company expects that after-tax net investment income from that portfolio will be approximately $530 million in the second quarter of 2023, $555 million in the third quarter of 2023 and $575 million in the fourth 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. 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 gains of $6 million in the first three months of 2023. 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 $4.91 billion ($3.87 billion after-tax) in its fixed maturity investment portfolio at March 31, 2023, compared to $6.22 billion ($4.90 billion after-tax) at December 31, 2022.  The net unrealized investment loss is primarily due to the impact of movements in interest rates. The decrease in the net unrealized investment loss in the first quarter of 2023 was due to decreases in interest rates. 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. These net
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MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

unrealized losses are due to recent increases in interest rates; however, the net unrealized loss is considered temporary in nature as it is not due to credit impairments, there is no impact on expected contractual cash flows from fixed maturities, and the Company generally holds its fixed maturity investments to maturity. In addition, 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. Equity securities, which include common and non-redeemable preferred stocks, are reported at fair value with changes in fair value recognized in net income.

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 2022 Annual Report.

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 2022 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 2022 Annual Report and see “Part II—Item 7A—Quantitative and Qualitative Disclosures About Market Risk-Foreign Currency Exchange Rate Risk” in the Company’s 2022 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 2023, 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 2022 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 2022 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
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MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

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 2022 Annual Report, in each case as updated by the Company’s periodic filings with the SEC.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is a measure of a company’s ability to generate sufficient cash flows to meet the cash requirements of its business operations and to satisfy general corporate purposes when needed.
 
Operating Company Liquidity.  The liquidity requirements of the Company’s insurance subsidiaries are met primarily by funds generated from premiums, fees, income received on investments and investment maturities.  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 2022 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 March 31, 2023, TRV held total cash and short-term invested assets in the United States aggregating $1.55 billion and having a weighted average maturity of 28 days.  TRV has established a holding company liquidity target equal to its estimated annual pre-tax interest expense and common shareholder dividends (currently approximately $1.27 billion).  TRV’s holding company liquidity of $1.55 billion at March 31, 2023 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 March 31, 2023.

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 March 31, 2023, 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 $260 million to provide a portion of the capital needed to support its obligations at Lloyd’s at March 31, 2023. 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 three months of 2023 and 2022 was $1.01 billion and $1.27 billion, respectively. The decrease in cash flows in the first three months of 2023 primarily reflected the impacts of higher levels of payments for claims and claim adjustments expenses and commissions, partially offset by higher levels of cash received for premiums.

Investing Activities
Net cash used in investing activities in the first three months of 2023 and 2022 was $455 million and $657 million, respectively.  The Company’s consolidated total investments at March 31, 2023 increased by $1.58 billion, or 2% over year-end 2022, primarily reflecting the impacts of (i) lower net unrealized investment losses due to the impact of lower interest rates during the first three months of 2023 and (ii) net cash flows provided by operating activities, partially offset by (iii) net cash used in financing activities.
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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 three months of 2023 and 2022 was $593 million and $613 million, respectively.  The totals in both 2023 and 2022 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 three months of 2023 and 2022 were $460 million and $559 million, respectively.
 
Dividends.  Dividends paid to shareholders were $215 million and $213 million in the first three months of 2023 and 2022, 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 April 19, 2023, the Company announced that it would increase its regular quarterly dividend from $0.93 per share to $1.00 per share, an 8% increase. The increased dividend is payable June 30, 2023 to shareholders of record on June 9, 2023.
 
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 months ended March 31, 2023, the Company repurchased 2.2 million common shares under its share repurchase authorizations for a total cost of $400 million. The average cost per share repurchased was $183.26. On April 19, 2023, the Board of Directors approved a share repurchase authorization that added an additional $5.0 billion of repurchase capacity to the $1.60 billion of capacity remaining at March 31, 2023. Included in the cost of treasury stock acquired pursuant to common share repurchases is the 1% excise tax imposed as part of the Inflation Reduction Act.

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 March 31, 2023 and December 31, 2022.
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MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

(in millions)March 31,
2023		December 31,
2022
Debt:  
Short-term$100 $100 
Long-term7,254 7,254 
Net unamortized fair value adjustments and debt issuance costs(62)(62)
Total debt7,292 7,292 
Shareholders’ equity:  
Common stock and retained earnings, less treasury stock28,438 28,005 
Accumulated other comprehensive loss(5,386)(6,445)
Total shareholders’ equity23,052 21,560 
Total capitalization$30,344 $28,852 
 
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)March 31,
2023		December 31,
2022
Total capitalization$30,344 $28,852 
Less: net unrealized gains (losses) on investments, net of taxes, included in shareholders’ equity(3,868)(4,898)
Total capitalization excluding net unrealized gains (losses) on investments, net of taxes, included in shareholders’ equity$34,212 $33,750 
Debt-to-total capital ratio24.0 %25.3 %
Debt-to-total capital ratio excluding net unrealized gains (losses) on investments, net of taxes, included in shareholders’ equity21.3 %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 21.3% at March 31, 2023 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). There have been no rating agency actions taken with respect to the Company since February 16, 2023, the date on which the Company’s 2022 Annual Report was filed with the SEC. For additional discussion of ratings, see “Part I—Item 1—Business—Ratings” in the Company’s 2022 Annual Report.

CRITICAL ACCOUNTING ESTIMATES
 
For a description of the Company’s critical accounting estimates, refer to “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in the Company’s 2022 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, 2022.
 
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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 $2.03 billion at March 31, 2023) 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:
 March 31, 2023December 31, 2022
(in millions)CaseIBNRTotalCaseIBNRTotal
General liability$5,456 $9,347 $14,803 $5,465 $9,220 $14,685 
Commercial property1,448 351 1,799 1,200 439 1,639 
Commercial multi-peril2,725 2,692 5,417 2,624 2,759 5,383 
Commercial automobile2,606 2,416 5,022 2,625 2,388 5,013 
Workers’ compensation9,968 9,497 19,465 10,034 9,458 19,492 
Fidelity and surety159 542 701 166 496 662 
Personal automobile2,151 2,107 4,258 2,139 2,133 4,272 
Personal homeowners and other1,230 1,781 3,011 1,095 1,913 3,008 
International and other2,447 2,135 4,582 2,420 2,069 4,489 
Property-casualty28,190 30,868 59,058 27,768 30,875 58,643 
Accident and health6 — 6 6 — 6 
Claims and claim adjustment expense reserves
$28,196 $30,868 $59,064 $27,774 $30,875 $58,649 
 
The $415 million increase in gross claims and claim adjustment expense reserves since December 31, 2022 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 three months of 2023, partially offset by (iv) claim payments made during the first three months of 2023 and (v) 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 2022 Annual Report for a discussion of recently issued accounting pronouncements.

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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,” “probably,” “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, the impact of trends on its business, such as the impact of elevated industrywide loss costs in Personal Insurance, 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 legislative or regulatory actions or court decisions;
•share repurchase plans;
•future pension plan contributions;
•the sufficiency of the Company’s reserves, including asbestos;
•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, disruption in the banking and commercial real estate sectors, changes in tax laws, changes in commodity prices and fluctuations in foreign currency exchange rates) and underwriting market conditions;
•the Company’s approach to managing its investment portfolio;
•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 and changing climate conditions, 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 (including as a result of a failure to raise the “debt ceiling”), the Company’s business could be materially and adversely affected;
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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, and any future pandemics (including new variants of COVID-19), 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
57

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 2022 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 2022 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 2022 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 March 31, 2023.  Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2023, 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 March 31, 2023 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.

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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 14 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 2022 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 2022 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 BeginningPeriod EndingTotal 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)
January 1, 2023January 31, 2023225,066 $190.32 224,014 $1,962 
February 1, 2023February 28, 20231,529,842 $185.12 1,196,884 $1,740 
March 1, 2023March 31, 2023762,541 $177.67 762,014 $1,605 
Total 2,517,449 $183.33 2,182,912 $1,605 
 
The Company’s Board of Directors has approved common share repurchase authorizations under which repurchases may be made from time to time in the open market, pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, in private transactions or otherwise. The authorizations do not have a stated expiration date. The timing and actual number of shares to be repurchased in the future will depend on a variety of factors, including the Company’s financial position, earnings, share price, catastrophe losses, maintaining capital levels 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. Included in the cost of treasury stock acquired pursuant to common share repurchases is the 1% excise tax imposed as part of the Inflation Reduction Act. On April 19, 2023, the Board of Directors approved a share repurchase authorization that added an additional $5.0 billion of repurchase capacity to the $1.60 billion of capacity remaining at March 31, 2023.
 
The Company acquired 334,537 shares for a total cost of $62 million during the three months ended March 31, 2023 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.”

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES


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 7, 2023. From time to time, some of the Company’s executives may determine that it is advisable to diversify their investments for personal financial planning reasons, or may seek liquidity for other reasons, and may, in compliance with the stock ownership policy, sell shares of common stock of the Company on the open market, in private transactions or to the Company. To effect such sales, from time to time, some of the Company’s executives may enter into trading plans designed to comply with the Company’s Securities Trading Policy and the provisions of Rule 10b5-1 under the Securities Exchange Act of 1934. The trading plans will not reduce any of the executives’ ownership of the Company’s shares below the applicable executive stock ownership guidelines. 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 
   
3.2 
31.1† 
   
31.2† 
   
32.1† 
   
32.2† 
   
101.1† 
The following information from The Travelers Companies, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 formatted in Inline XBRL: (i) Consolidated Statement of Income for the three months ended March 31, 2023 and 2022; (ii) Consolidated Statement of Comprehensive Income (Loss) for the three months ended March 31, 2023 and 2022; (iii) Consolidated Balance Sheet at March 31, 2023 and December 31, 2022; (iv) Consolidated Statement of Changes in Shareholders’ Equity for the three months ended March 31, 2023 and 2022; (v) Consolidated Statement of Cash Flows for the three months ended March 31, 2023 and 2022; (vi) Notes to Consolidated Financial Statements; and (vii) the cover page.
104.1Cover 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.
60


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: April 19, 2023By/S/   CHRISTINE K. KALLA
  Christine K. Kalla
Executive Vice President and General Counsel
(Authorized Signatory)
   
Date: April 19, 2023By/S/    DOUGLAS K. RUSSELL
  
Douglas K. Russell
Senior Vice President and Corporate Controller (Principal Accounting Officer)

61

Exhibit 31.1
 
CERTIFICATION
 
I, Alan D. Schnitzer, certify that:
 
1.I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 of The Travelers Companies, Inc. (the Company);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:  
a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
5.The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s Board of Directors (or persons performing the equivalent functions):
a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
 
Date:  April 19, 2023 By:/S/ ALAN D. SCHNITZER
  Alan D. Schnitzer
Chairman and Chief Executive Officer
 

1

Exhibit 31.2
 
CERTIFICATION
 
I, Daniel S. Frey, certify that:
 
1.I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 of The Travelers Companies, Inc. (the Company);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:  
a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
5.The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s Board of Directors (or persons performing the equivalent functions):
a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
 
Date:  April 19, 2023 By:/S/ DANIEL S. FREY
  Daniel S. Frey
Executive Vice President and Chief Financial Officer

1

Exhibit 32.1
 
THE TRAVELERS COMPANIES, INC.
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
Pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and 18 U.S.C. Section 1350, the undersigned officer of The Travelers Companies, Inc. (the “Company”), hereby certifies that the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  April 19, 2023 By:/S/ ALAN D. SCHNITZER
  Alan D. Schnitzer
Chairman and Chief Executive Officer

1

Exhibit 32.2
 
THE TRAVELERS COMPANIES, INC.
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
Pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and 18 U.S.C. Section 1350, the undersigned officer of The Travelers Companies, Inc. (the “Company”), hereby certifies that the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  April 19, 2023 By:/S/ DANIEL S. FREY
  Daniel S. Frey
 Executive Vice President and Chief Financial Officer

1