The Travelers Companies, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing is an annual report; the supplied text does not provide standalone fourth-quarter results. Travelers is a property-and-casualty insurer operating through Business Insurance, Bond & Specialty Insurance, and Personal Insurance.
Financial results and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $34.82 billion | $31.98 billion |
| Earned premiums | $30.86 billion, up 6% | $29.04 billion |
| Net written premiums | $31.96 billion, up 7% | $29.73 billion |
| Net income | $3.66 billion; diluted EPS $14.49 | $2.70 billion; diluted EPS $10.52 |
| Combined ratio | 94.5% | 95.0% |
| Operating cash flow | $7.27 billion | $6.52 billion |
| Net investment income | $3.03 billion | $2.23 billion |
Investment income rose 36%, mainly because of stronger private-equity partnership returns; income from fixed maturities was slightly lower. The effective tax rate was 18%, versus 17% in 2020. Catastrophe losses were $1.85 billion before tax, compared with $1.61 billion; net favorable prior-year reserve development was $538 million, versus $351 million.
At year-end, total assets were $120.47 billion, total investments $87.38 billion, shareholders’ equity $28.89 billion and debt $7.29 billion. The debt-to-total-capital ratio was 20.2% (21.6% excluding after-tax unrealized investment gains). Book value per share was $119.77. Holding-company liquidity was $1.53 billion, above the company’s stated approximate $1.18 billion target. The fixed-maturity portfolio was rated Aa2 on average; 1.4% was below investment grade.
Segment performance and material changes
- Business Insurance: Segment income increased 82% to $2.39 billion; combined ratio improved to 95.7% from 100.3%. Results benefited from pricing exceeding loss-cost trends, COVID-related favorable claims effects versus a prior-year charge, higher investment income and favorable reserve development. Net written premiums rose 4%.
- Bond & Specialty Insurance: Segment income increased 41% to $668 million; combined ratio improved to 81.5% from 87.4%. Net written premiums rose 14%, with growth in management liability and international business.
- Personal Insurance: Segment income fell 36% to $760 million; combined ratio worsened to 96.5% from 89.7%. Higher auto losses as driving activity recovered, elevated severity, higher homeowners losses, greater catastrophe losses and lower favorable reserve development more than offset premium growth. Net written premiums rose 10%.
Consolidated underwriting performance improved modestly: the combined ratio fell 0.5 percentage point, while the underlying combined ratio excluding catastrophe losses and prior-year reserve development improved 0.4 point. Catastrophes included Hurricane Ida, tornadoes, winter storms, severe wind and hail, and a Colorado wildfire. The 2021 property aggregate catastrophe treaty provided its full $350 million of available recoveries.
Outlook, risks and unusual items
- For 2022, management expected strong-by-historical-standards retention, while anticipating competitive conditions for new business. It forecast after-tax net investment income from the fixed-income portfolio of approximately $430–$440 million per quarter, based on current expectations. It expected income from private-equity, hedge-fund and real-estate partnerships to be significantly lower than in 2021.
- Management expects, over time, dividends and repurchases generally not to exceed net income. The board declared a quarterly dividend of $0.88 per share in January 2022. Future repurchases depend on capital needs, catastrophe losses, ratings, market conditions and other factors.
- Key risks include unpredictable catastrophe frequency and severity, climate-related uncertainty, inflation and supply-chain or labor constraints affecting claim severity, a challenging tort environment, and the estimation uncertainty of long-tail reserves. Rate regulation may limit the speed or extent of pricing actions.
- Asbestos reserves increased by $225 million in 2021; net asbestos reserves were $1.34 billion at year-end. Environmental reserves increased by $89 million; net environmental reserves were $321 million. The company said potential additional liabilities from these claims and related litigation cannot currently be reasonably estimated and could be material.
- Private-equity and other partnership returns were unusually strong in 2021 and materially lifted investment income. Rising interest rates reduced after-tax unrealized investment gains in equity by $1.66 billion during the year. The company reported $3.06 billion of pre-tax net unrealized investment gains at year-end.
- The financial statements received an unqualified audit opinion. The auditor identified claims and claim-adjustment reserves, totaling $56.9 billion, as a critical audit matter because of the judgment and uncertainty involved.
Investor verification priorities
- Review the full 10-K’s loss-reserve disclosures, especially development by accident year and the asbestos and environmental reserve assumptions.
- Assess whether auto and property pricing can keep pace with inflation, claim severity and catastrophe losses, particularly in Personal Insurance.
- Check the 2022 fixed-income investment-income outlook against actual reinvestment yields and results from alternative investments.
- Evaluate catastrophe exposure, reinsurance attachment points and exclusions, and whether modeled losses adequately reflect changing weather conditions.
- Reconcile capital returns, debt growth and liquidity with statutory limits on insurance-subsidiary dividends and the company’s stated capital objectives.