Business context and reporting period
The Travelers Companies, Inc. (NYSE: TRV) is a property-and-casualty insurer operating through Business Insurance, Bond & Specialty Insurance, and Personal Insurance. This Form 10-K covers the fiscal year ended December 31, 2023; comparisons are with 2022 unless stated otherwise.
Financial results and condition
| Metric | 2023 | 2022 | Change / context |
|---|---|---|---|
| Total revenues | $41.36 billion | $36.88 billion | Up 12% |
| Net income | $2.99 billion | $2.84 billion | Up 5% |
| Diluted earnings per share | $12.79 | $11.77 | Up 9%, including benefit from share repurchases |
| Net earned premiums | $37.76 billion | $33.76 billion | Up 12% |
| Net investment income | $2.92 billion | $2.56 billion | Up 14% |
| Operating cash flow | $7.71 billion | $6.47 billion | Up $1.25 billion |
| Combined ratio | 97.0% | 95.6% | Higher ratio indicates weaker overall underwriting result; below 100% indicates an underwriting profit |
| Total debt | $8.03 billion | $7.29 billion | Debt-to-total capital 24.4%; 22.3% excluding after-tax net unrealized investment losses |
At year-end, total assets were $125.98 billion, shareholders’ equity was $24.92 billion, book value per common share was $109.19, and holding-company liquidity was $1.54 billion. The investment portfolio totaled $88.81 billion, with 93% in fixed-maturity and short-term securities. After-tax net unrealized investment losses were $3.13 billion, improving from $4.90 billion in 2022 as interest-rate movements lifted portfolio values. Management considers the losses temporary and says contractual cash flows and liquidity are not meaningfully impaired.
Segment performance
- Business Insurance: segment income was $2.58 billion, up 2%; combined ratio was 94.7%, versus 92.5%. Net written premiums rose 16% to $20.43 billion. Higher catastrophe losses and unfavorable prior-year development weighed on results, while underlying underwriting margins improved.
- Bond & Specialty Insurance: segment income was $942 million, up 4%; combined ratio was 76.9%, versus 75.3%. Net written premiums rose 3% to $3.84 billion. Higher investment income and favorable reserve development helped; expenses, some surety losses and banking-sector disruption hurt underlying margins.
- Personal Insurance: segment loss narrowed to $128 million from $140 million; combined ratio was 104.8%, versus 104.9%. Net written premiums rose 13% to $15.93 billion. Higher catastrophe losses were largely offset by better underlying margins, earned pricing and lower homeowners losses; auto losses remained elevated.
Material changes versus 2022
- Catastrophe losses increased to $2.99 billion from $1.88 billion, driven mainly by numerous severe wind and hail storms. Personal Insurance accounted for $2.12 billion of 2023 catastrophe losses.
- Net favorable prior-year reserve development fell to $143 million from $649 million. Business Insurance recorded $289 million of unfavorable development, offset in part by favorable development in Bond & Specialty ($285 million) and Personal Insurance ($147 million).
- Underlying combined ratio, excluding catastrophes and prior-year development, improved by 2.5 points, reflecting earned pricing and lower property losses, partly offset by Personal auto losses, surety claims and banking-related losses.
- Net investment income increased as yields and average fixed-maturity holdings rose; returns from real estate and private-equity partnerships were lower.
- Operating cash flow rose, while cash used in investing increased to $6.82 billion from $3.73 billion. Share repurchases under authorizations declined to $965 million from $2.00 billion, which the company attributed to catastrophe losses and capital needs supporting growth.
Outlook, commentary, risks and unusual items
- Management expects strong retention by historical standards in 2024, while competition for new business is expected to remain strong. It does not provide full-year earnings or combined-ratio guidance.
- Management estimates after-tax fixed-income investment income of approximately $630 million in Q1 2024, increasing to approximately $675 million by Q4 2024, subject to interest rates and financial-market conditions.
- The company renewed its Fidelis quota-share agreement effective January 1, 2024, assuming 20% of Fidelis gross written premiums subject to a loss-ratio cap. It completed the acquisition of cyber-insurance managing general underwriter Corvus on January 2, 2024, for approximately $426 million, funded internally.
- A $211 million one-time tax benefit from expiration of a statute of limitations helped reduce the 2023 effective tax rate to 11%, from 15% in 2022. Net realized investment losses were $105 million, versus $204 million in 2022.
- Asbestos reserves increased by $284 million in 2023; net asbestos reserves were $1.38 billion at year-end. Environmental reserves increased by $93 million and stood at $382 million. Management warns that future adverse development could be material, but cannot reasonably estimate a possible amount.
- Key risks include unpredictable catastrophe frequency and severity, climate-related exposure, inflation and repair costs, an elevated tort environment and attorney involvement, reserve-estimation uncertainty, reinsurance availability and collectability, credit exposure, interest-rate and investment risks, and regulatory limits on pricing or reducing exposure in catastrophe-prone markets.
- The 2024 corporate catastrophe treaty has a $3.5 billion retention before recovery begins and maximum recovery of $3.5 billion. Significant exclusions and limits apply, including for certain terrorism, cyber and communicable-disease events. The filing stresses that catastrophe models and estimates are uncertain.
- The qualified domestic pension plan was 120% funded at year-end; management anticipates no voluntary contribution in 2024. The company reported no material cybersecurity impact to date and effective internal control over financial reporting. The auditor issued unqualified opinions on the financial statements and internal controls; claims reserves were identified as a critical audit matter.
Most important facts for investors to verify
- Whether 2024 earned pricing and premium growth can offset continued auto severity, inflation and catastrophe losses, particularly during the historically active second quarter.
- How the underlying combined ratio develops after excluding catastrophe losses and reserve development, and whether Personal Insurance returns to underwriting profitability.
- Whether the $61.6 billion claims reserve, including asbestos and environmental liabilities, proves adequate as claims mature and litigation develops.
- Whether forecast investment-income growth is realized and how interest-rate changes affect book value, reinvestment yields and portfolio liquidity.
- Corvus integration and returns, the Fidelis quota-share agreement’s loss performance, and the effect of business growth on capital needs and shareholder distributions.
- Reinsurance protection, including attachment points, exclusions, aggregate limits and counterparty credit quality; also monitor the $8.14 billion of net reinsurance recoverables.
- Holding-company liquidity and access to subsidiary dividends: $1.54 billion of holding-company liquidity exceeded management’s approximately $1.30 billion target, while up to $2.73 billion of subsidiary dividends was available through 2024 without prior Connecticut approval.