FORM 10-Q
x☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
2020 The Travelers Companies, Inc. Minnesota (I.R.S. Employer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company Consolidated Balance Sheet — Three Months Ended Nine Months Ended 2017 2016 2017 2016 Revenues Premiums $ 6,523 $ 6,209 $ 19,057 $ 18,257 Net investment income 588 582 1,796 1,675 Fee income 113 116 342 352 Net realized investment gains (1) 61 23 146 33 Other revenues 40 31 110 115 Total revenues 7,325 6,961 21,451 20,432 Claims and expenses Claims and claim adjustment expenses 4,806 3,856 13,125 11,330 Amortization of deferred acquisition costs 1,059 1,012 3,094 2,972 General and administrative expenses 1,045 1,057 3,086 3,106 Interest expense 95 89 276 273 Total claims and expenses 7,005 6,014 19,581 17,681 Income before income taxes 320 947 1,870 2,751 Income tax expense 27 231 365 680 Net income $ 293 $ 716 $ 1,505 $ 2,071 Net income per share Basic $ 1.06 $ 2.48 $ 5.39 $ 7.09 Diluted $ 1.05 $ 2.45 $ 5.34 $ 7.00 Weighted average number of common shares outstanding Basic 274.1 286.0 277.1 290.0 Diluted 276.6 289.8 279.6 293.6 Cash dividends declared per common share $ 0.72 $ 0.67 $ 2.11 $ 1.95 Three Months Ended Nine Months Ended 2017 2016 2017 2016 �� Net income $ 293 $ 716 $ 1,505 $ 2,071 Other comprehensive income (loss): Changes in net unrealized gains on investment securities: Having no credit losses recognized in the consolidated statement of income (42 ) (455 ) 429 1,138 Having credit losses recognized in the consolidated statement of income 2 6 4 23 Net changes in benefit plan assets and obligations (9 ) 16 25 50 Net changes in unrealized foreign currency translation 113 (31 ) 202 37 Other comprehensive income (loss) before income taxes 64 (464 ) 660 1,248 Income tax expense (benefit) 5 (159 ) 190 431 Other comprehensive income (loss), net of taxes 59 (305 ) 470 817 Comprehensive income $ 352 $ 411 $ 1,975 $ 2,888 September 30, December 31, (Unaudited) Assets Fixed maturities, available for sale, at fair value (amortized cost $60,727 and $59,650) $ 62,157 $ 60,515 Equity securities, available for sale, at fair value (cost $509 and $504) 601 732 Real estate investments 923 928 Short-term securities 5,859 4,865 Other investments 3,552 3,448 Total investments 73,092 70,488 Cash 379 307 Investment income accrued 568 630 Premiums receivable 7,267 6,722 Reinsurance recoverables 8,345 8,287 Ceded unearned premiums 688 589 Deferred acquisition costs 2,077 1,923 Deferred taxes 243 465 Contractholder receivables 4,757 4,609 Goodwill 3,946 3,580 Other intangible assets 345 268 Other assets 2,604 2,377 Total assets $ 104,311 $ 100,245 Liabilities Claims and claim adjustment expense reserves $ 49,750 $ 47,949 Unearned premium reserves 13,247 12,329 Contractholder payables 4,757 4,609 Payables for reinsurance premiums 423 273 Debt 6,921 6,437 Other liabilities 5,475 5,427 Total liabilities 80,573 77,024 Shareholders’ equity Common stock (1,750.0 shares authorized; 273.8 and 279.6 shares issued, 273.7 and 279.6 shares outstanding) 22,836 22,614 Retained earnings 33,110 32,196 Accumulated other comprehensive loss (285 ) (755 ) Treasury stock, at cost (498.3 and 489.5 shares) (31,923 ) (30,834 ) Total shareholders’ equity 23,738 23,221 Total liabilities and shareholders’ equity $ 104,311 $ 100,245 For the nine months ended September 30, 2017 2016 Common stock Balance, beginning of year $ 22,614 $ 22,172 Employee share-based compensation 118 123 Compensation amortization under share-based plans and other changes 104 124 Balance, end of period 22,836 22,419 Retained earnings Balance, beginning of year 32,196 29,945 Net income 1,505 2,071 Dividends (591 ) (571 ) Other — (2 ) Balance, end of period 33,110 31,443 Accumulated other comprehensive income (loss), net of tax Balance, beginning of year (755 ) (157 ) Other comprehensive income 470 817 Balance, end of period (285 ) 660 Treasury stock (at cost) Balance, beginning of year (30,834 ) (28,362 ) Treasury stock acquired — share repurchase authorization (1,028 ) (1,650 ) Net shares acquired related to employee share-based compensation plans (61 ) (71 ) Balance, end of period (31,923 ) (30,083 ) Total shareholders’ equity $ 23,738 $ 24,439 Common shares outstanding Balance, beginning of year 279.6 295.9 Treasury stock acquired — share repurchase authorization (8.3 ) (14.7 ) Net shares issued under employee share-based compensation plans 2.4 2.9 Balance, end of period 273.7 284.1 For the nine months ended September 30, 2017 2016 Cash flows from operating activities Net income $ 1,505 $ 2,071 Adjustments to reconcile net income to net cash provided by operating activities: Net realized investment gains (146 ) (33 ) Depreciation and amortization 611 624 Deferred federal income tax expense 88 29 Amortization of deferred acquisition costs 3,094 2,972 Equity in income from other investments (300 ) (114 ) Premiums receivable (517 ) (340 ) Reinsurance recoverables (19 ) 248 Deferred acquisition costs (3,237 ) (3,096 ) Claims and claim adjustment expense reserves 1,561 (139 ) Unearned premium reserves 852 725 Other (268 ) 116 Net cash provided by operating activities 3,224 3,063 Cash flows from investing activities Proceeds from maturities of fixed maturities 6,581 6,648 Proceeds from sales of investments: Fixed maturities 860 865 Equity securities 340 71 Real estate investments 23 69 Other investments 603 569 Purchases of investments: Fixed maturities (8,403 ) (9,004 ) Equity securities (193 ) (36 ) Real estate investments (40 ) (30 ) Other investments (392 ) (422 ) Net purchases of short-term securities (990 ) (135 ) Securities transactions in course of settlement 122 511 Acquisition, net of cash acquired (439 ) — Other (187 ) (240 ) Net cash used in investing activities (2,115 ) (1,134 ) Cash flows from financing activities Treasury stock acquired — share repurchase authorization (1,028 ) (1,650 ) Treasury stock acquired — net employee share-based compensation (61 ) (71 ) Dividends paid to shareholders (589 ) (569 ) Payment of debt (207 ) (400 ) Issuance of debt 689 491 Issuance of common stock — employee share options 148 164 Net cash used in financing activities (1,048 ) (2,035 ) Effect of exchange rate changes on cash 11 (5 ) Net increase (decrease) in cash 72 (111 ) Cash at beginning of year 307 380 Cash at end of period $ 379 $ 269 Supplemental disclosure of cash flow information Income taxes paid $ 467 $ 648 Interest paid $ 217 $ 223 . Credit Losses on Financial Instruments will no longer impact the determination of whether a credit loss exists. estimated uncollectible reinsurance. Report. ability to cancel the policy if the policyholder does not pay the premium. 2019 Annual Report. (for the three months Business Bond & Specialty Personal Total 2017 Premiums $ 3,576 $ 591 $ 2,356 $ 6,523 Net investment income 437 57 94 588 Fee income 108 — 5 113 Other revenues 19 5 14 38 Total segment revenues (1) $ 4,140 $ 653 $ 2,469 $ 7,262 Segment income (1) $ 105 $ 136 $ 77 $ 318 2016 Premiums $ 3,497 $ 573 $ 2,139 $ 6,209 Net investment income 431 59 92 582 Fee income 111 — 5 116 Other revenues 7 5 16 28 Total segment revenues (1) $ 4,046 $ 637 $ 2,252 $ 6,935 Segment income (1) $ 433 $ 165 $ 163 $ 761 (1)Segment revenues for reportable business segments exclude net realized investment gains (losses) (for the nine months Business Bond & Specialty Personal Total 2017 Premiums $ 10,509 $ 1,721 $ 6,827 $ 19,057 Net investment income 1,337 174 285 1,796 Fee income 329 — 13 342 Other revenues 43 16 45 104 Total segment revenues (1) $ 12,218 $ 1,911 $ 7,170 $ 21,299 Segment income (1) $ 976 $ 444 $ 178 $ 1,598 2016 Premiums $ 10,350 $ 1,684 $ 6,223 $ 18,257 Net investment income 1,234 177 264 1,675 Fee income 340 — 12 352 Other revenues 45 14 47 106 Total segment revenues (1) $ 11,969 $ 1,875 $ 6,546 $ 20,390 Segment income (1) $ 1,281 $ 540 $ 410 $ 2,231 (loss) from "interest expense and other." Three Months Ended Nine Months Ended (in millions) 2017 2016 2017 2016 Revenue reconciliation Earned premiums Business Insurance: Domestic: Workers’ compensation $ 998 $ 1,003 $ 2,973 $ 2,971 Commercial automobile 544 503 1,571 1,497 Commercial property 448 441 1,326 1,320 General liability 523 504 1,512 1,471 Commercial multi-peril 806 788 2,377 2,356 Other 7 9 21 23 Total Domestic 3,326 3,248 9,780 9,638 International 250 249 729 712 Total Business Insurance 3,576 3,497 10,509 10,350 Bond & Specialty Insurance: Domestic: Fidelity and surety 249 245 728 714 General liability 243 239 717 708 Other 48 45 139 133 Total Domestic 540 529 1,584 1,555 International 51 44 137 129 Total Bond & Specialty Insurance 591 573 1,721 1,684 Personal Insurance: Domestic: Automobile 1,192 1,026 3,431 2,936 Homeowners and Other 999 962 2,931 2,844 Total Domestic 2,191 1,988 6,362 5,780 International 165 151 465 443 Total Personal Insurance 2,356 2,139 6,827 6,223 Total earned premiums 6,523 6,209 19,057 18,257 Net investment income 588 582 1,796 1,675 Fee income 113 116 342 352 Other revenues 38 28 104 106 Total segment revenues 7,262 6,935 21,299 20,390 Other revenues 2 3 6 9 Net realized investment gains 61 23 146 33 Total revenues $ 7,325 $ 6,961 $ 21,451 $ 20,432 Income reconciliation, net of tax Total segment income $ 318 $ 761 $ 1,598 $ 2,231 Interest Expense and Other (1) (65 ) (60 ) (188 ) (183 ) Core income 253 701 1,410 2,048 Net realized investment gains 40 15 95 23 Net income $ 293 $ 716 $ 1,505 $ 2,071 (1) The primary component of Interest Expense and Other was after-tax interest expense of (in millions) September 30, December 31, Asset reconciliation Business Insurance $ 78,985 $ 75,730 Bond & Specialty Insurance 9,005 8,726 Personal Insurance 15,962 15,426 Total segment assets 103,952 99,882 Other assets (1) 359 363 Total consolidated assets $ 104,311 $ 100,245 assets. Amortized Gross Unrealized Fair (at September 30, 2017, in millions) Cost Gains Losses Value U.S. Treasury securities and obligations of U.S. government and government agencies and authorities $ 2,064 $ 9 $ 5 $ 2,068 Obligations of states, municipalities and political subdivisions: Local general obligation 13,798 410 67 14,141 Revenue 11,341 324 51 11,614 State general obligation 1,555 45 9 1,591 Pre-refunded 3,666 163 — 3,829 Total obligations of states, municipalities and political subdivisions 30,360 942 127 31,175 Debt securities issued by foreign governments 1,559 17 11 1,565 Mortgage-backed securities, collateralized mortgage obligations and pass-through securities 2,082 97 6 2,173 All other corporate bonds 24,572 587 79 25,080 Redeemable preferred stock 90 6 — 96 Total $ 60,727 $ 1,658 $ 228 $ 62,157 Amortized Gross Unrealized Fair (at December 31, 2016, in millions) Cost Gains Losses Value U.S. Treasury securities and obligations of U.S. government and government agencies and authorities $ 2,031 $ 9 $ 5 $ 2,035 Obligations of states, municipalities and political subdivisions: Local general obligation 13,955 271 182 14,044 Revenue 10,910 215 147 10,978 State general obligation 1,717 36 22 1,731 Pre-refunded 4,968 190 1 5,157 Total obligations of states, municipalities and political subdivisions 31,550 712 352 31,910 Debt securities issued by foreign governments 1,631 34 3 1,662 Mortgage-backed securities, collateralized mortgage obligations and pass-through securities 1,614 100 6 1,708 All other corporate bonds 22,737 508 138 23,107 Redeemable preferred stock 87 6 — 93 Total $ 59,650 $ 1,369 $ 504 $ 60,515 Gross Unrealized Fair (at September 30, 2017, in millions) Cost Gains Losses Value Public common stock $ 392 $ 80 $ 2 $ 470 Non-redeemable preferred stock 117 20 6 131 Total $ 509 $ 100 $ 8 $ 601 Gross Unrealized Fair (at December 31, 2016, in millions) Cost Gains Losses Value Public common stock $ 390 $ 216 $ 3 $ 603 Non-redeemable preferred stock 114 20 5 129 Total $ 504 $ 236 $ 8 $ 732 volatility in global financial markets associated with the global pandemic beginning in March 2020 related to the novel coronavirus COVID-19. Less than 12 months 12 months or longer Total (at September 30, 2017, in millions) Fair Gross Fair Gross Fair Gross Fixed maturities U.S. Treasury securities and obligations of U.S. government and government agencies and authorities $ 1,348 $ 4 $ 72 $ 1 $ 1,420 $ 5 Obligations of states, municipalities and political subdivisions 4,131 58 1,598 69 5,729 127 Debt securities issued by foreign governments 538 11 — — 538 11 Mortgage-backed securities, collateralized mortgage obligations and pass-through securities 729 5 81 1 810 6 All other corporate bonds 4,896 57 679 22 5,575 79 Total fixed maturities 11,642 135 2,430 93 14,072 228 Equity securities Public common stock 39 1 6 1 45 2 Non-redeemable preferred stock — — 60 6 60 6 Total equity securities 39 1 66 7 105 8 Total $ 11,681 $ 136 $ 2,496 $ 100 $ 14,177 $ 236 Less than 12 months 12 months or Total (at December 31, 2016, in millions) Fair Gross Fair Gross Fair Gross Fixed maturities U.S. Treasury securities and obligations of U.S. government and government agencies and authorities $ 1,124 $ 5 $ — $ — $ 1,124 $ 5 Obligations of states, municipalities and political subdivisions 9,781 352 12 — 9,793 352 Debt securities issued by foreign governments 360 3 — — 360 3 Mortgage-backed securities, collateralized mortgage obligations and pass-through securities 528 5 43 1 571 6 All other corporate bonds 6,470 115 437 23 6,907 138 Total fixed maturities 18,263 480 492 24 18,755 504 Equity securities Public common stock 45 2 10 1 55 3 Non-redeemable preferred stock 2 — 59 5 61 5 Total equity securities 47 2 69 6 116 8 Total $ 18,310 $ 482 $ 561 $ 30 $ 18,871 $ 512 second quarter of 2020. 2019. the acquired company's financial performance, adjusted for a risk margin and discounted to present value. The Company includes the fair value estimate of the put/call in Level 3. (at September 30, 2017, in millions) Total Level 1 Level 2 Level 3 Invested assets: Fixed maturities U.S. Treasury securities and obligations of U.S. government and government agencies and authorities $ 2,068 $ 2,068 $ — $ — Obligations of states, municipalities and political subdivisions 31,175 18 31,153 4 Debt securities issued by foreign governments 1,565 — 1,565 — Mortgage-backed securities, collateralized mortgage obligations and pass-through securities 2,173 — 2,143 30 All other corporate bonds 25,080 2 24,914 164 Redeemable preferred stock 96 3 93 — Total fixed maturities 62,157 2,091 59,868 198 Equity securities Public common stock 470 470 — — Non-redeemable preferred stock 131 68 63 — Total equity securities 601 538 63 — Other investments 56 18 — 38 Total $ 62,814 $ 2,647 $ 59,931 $ 236 (at December 31, 2016, in millions) Total Level 1 Level 2 Level 3 Invested assets: Fixed maturities U.S. Treasury securities and obligations of U.S. government and government agencies and authorities $ 2,035 $ 2,035 $ — $ — Obligations of states, municipalities and political subdivisions 31,910 — 31,898 12 Debt securities issued by foreign governments 1,662 — 1,662 — Mortgage-backed securities, collateralized mortgage obligations and pass-through securities 1,708 — 1,704 4 All other corporate bonds 23,107 — 22,939 168 Redeemable preferred stock 93 3 90 — Total fixed maturities 60,515 2,038 58,293 184 Equity securities Public common stock 603 603 — — Non-redeemable preferred stock 129 51 78 — Total equity securities 732 654 78 — Other investments 53 17 — 36 Total $ 61,300 $ 2,709 $ 58,371 $ 220 2019. (at September 30, 2017, in millions) Carrying Fair Level 1 Level 2 Level 3 Financial assets: Short-term securities $ 5,859 $ 5,859 $ 1,830 $ 3,995 $ 34 Financial liabilities: Debt $ 6,921 $ 8,042 $ — $ 8,042 $ — (at December 31, 2016, in millions) Carrying Fair Level 1 Level 2 Level 3 Financial assets: Short-term securities $ 4,865 $ 4,865 $ 1,223 $ 3,607 $ 35 Financial liabilities: Debt $ 6,337 $ 7,262 $ — $ 7,262 $ — Commercial paper $ 100 $ 100 $ — $ 100 $ — 2019. (in millions) September 30, December 31, Business Insurance (1) $ 2,579 $ 2,227 Bond & Specialty Insurance 550 549 Personal Insurance 791 778 Other 26 26 Total $ 3,946 $ 3,580 (at September 30, 2017, in millions) Gross Accumulated Net Subject to amortization (1) $ 285 $ 167 $ 118 Not subject to amortization 227 — 227 Total $ 512 $ 167 $ 345 (at December 31, 2016, in millions) Gross Accumulated Net Subject to amortization (1) $ 210 $ 159 $ 51 Not subject to amortization 217 — 217 Total $ 427 $ 159 $ 268 (in millions) September 30, December 31, Property-casualty $ 49,733 $ 47,929 Accident and health 17 20 Total $ 49,750 $ 47,949 (for the nine months ended September 30, in millions) 2017 2016 Claims and claim adjustment expense reserves at beginning of year $ 47,929 $ 48,272 Less reinsurance recoverables on unpaid losses 7,981 8,449 Net reserves at beginning of year 39,948 39,823 Estimated claims and claim adjustment expenses for claims arising in the current year 13,261 11,708 Estimated decrease in claims and claim adjustment expenses for claims arising in prior years (197 ) (430 ) Total increases 13,064 11,278 Claims and claim adjustment expense payments for claims arising in: Current year 4,799 4,334 Prior years 6,831 6,778 Total payments 11,630 11,112 Unrealized foreign exchange loss 215 12 Net reserves at end of period 41,597 40,001 Plus reinsurance recoverables on unpaid losses 8,136 8,146 Claims and claim adjustment expense reserves at end of period $ 49,733 $ 48,147 expenses: COVID-19. the Company's reinsurers. period that impacted the Company's results of operations. segment's domestic operations in both the automobile and homeowners and other product lines for recent accident years. Changes in Net Unrealized Gains on Net Benefit Plan (in millions, net of taxes) Having No Credit Having Credit Losses Assets and Net Unrealized Total Accumulated Balance, December 31, 2016 $ 528 $ 202 $ (703 ) $ (782 ) $ (755 ) Other comprehensive income (OCI) before reclassifications 377 1 (23 ) 177 532 Amounts reclassified from AOCI (103 ) 1 40 — (62 ) Net OCI, current period 274 2 17 177 470 Balance, September 30, 2017 $ 802 $ 204 $ (686 ) $ (605 ) $ (285 ) 2020. Three Months Ended Nine Months Ended (in millions) 2017 2016 2017 2016 Changes in net unrealized gains on investment securities: Having no credit losses recognized in the consolidated statement of income $ (42 ) $ (455 ) $ 429 $ 1,138 Income tax expense (benefit) (12 ) (159 ) 155 393 Net of taxes (30 ) (296 ) 274 745 Having credit losses recognized in the consolidated statement of income 2 6 4 23 Income tax expense 1 2 2 8 Net of taxes 1 4 2 15 Net changes in benefit plan assets and obligations (9 ) 16 25 50 Income tax expense (benefit) (3 ) 6 8 17 Net of taxes (6 ) 10 17 33 Net changes in unrealized foreign currency translation 113 (31 ) 202 37 Income tax expense (benefit) 19 (8 ) 25 13 Net of taxes 94 (23 ) 177 24 Total other comprehensive income (loss) 64 (464 ) 660 1,248 Total income tax expense (benefit) 5 (159 ) 190 431 Total other comprehensive income (loss), net of taxes $ 59 $ (305 ) $ 470 $ 817 expense. Three Months Ended Nine Months Ended (in millions) 2017 2016 2017 2016 Reclassification adjustments related to unrealized gains on investment securities: Having no credit losses recognized in the consolidated statement of income (1) $ (64 ) $ (19 ) $ (158 ) $ (54 ) Income tax expense (2) (22 ) (7 ) (55 ) (19 ) Net of taxes (42 ) (12 ) (103 ) (35 ) Having credit losses recognized in the consolidated statement of income (1) 1 — 1 12 Income tax benefit (2) — — — 4 Net of taxes 1 — 1 8 Reclassification adjustment related to benefit plan assets and obligations: Claims and claim adjustment expenses (3) 11 6 25 18 General and administrative expenses (3) 16 9 37 28 Total 27 15 62 46 Income tax benefit (2) 10 5 22 16 Net of taxes 17 10 40 30 Reclassification adjustment related to foreign currency translation (1) — — — — Income tax benefit (2) — — — — Net of taxes — — — — Total reclassifications (36 ) (4 ) (95 ) 4 Total income tax (expense) benefit (12 ) (2 ) (33 ) 1 Total reclassifications, net of taxes $ (24 ) $ (2 ) $ (62 ) $ 3 income (loss). income (loss). Three Months Ended Nine Months Ended (in millions, except per share amounts) 2017 2016 2017 2016 Basic and Diluted Net income, as reported $ 293 $ 716 $ 1,505 $ 2,071 Participating share-based awards — allocated income (2 ) (6 ) (11 ) (16 ) Net income available to common shareholders — basic and diluted $ 291 $ 710 $ 1,494 $ 2,055 Common Shares Basic Weighted average shares outstanding 274.1 286.0 277.1 290.0 Diluted Weighted average shares outstanding 274.1 286.0 277.1 290.0 Weighted average effects of dilutive securities — stock options and performance shares 2.5 3.8 2.5 3.6 Total 276.6 289.8 279.6 293.6 Net Income per Common Share Basic $ 1.06 $ 2.48 $ 5.39 $ 7.09 Diluted $ 1.05 $ 2.45 $ 5.34 $ 7.00 Stock Options Number Weighted Weighted Aggregate Vested at end of period (1) 5,714,377 $ 88.66 6.2 years $ 194 Exercisable at end of period 3,060,575 $ 70.15 4.3 years $ 160 (1)Represents awards for which the requisite service has been rendered, including those that are retirement eligible. 2019. (for the three months ended Pension Plans Postretirement Benefit Plans September 30, in millions) 2017 2016 2017 2016 Net Periodic Benefit Cost: Service cost $ 30 $ 29 $ — $ — Non-service cost: Interest cost on benefit obligation 35 30 2 2 Expected return on plan assets (60 ) (57 ) — — Settlement — — — — Amortization of unrecognized: Prior service benefit (1 ) — (1 ) (1 ) Net actuarial loss 29 17 — — Total non-service cost (benefit) 3 (10 ) 1 1 Net periodic benefit cost $ 33 $ 19 $ 1 $ 1 2019. (for the three months ended Pension Plans Postretirement Benefit Plans September 30, in millions) 2017 2016 2017 2016 Service Cost: Claims and claim adjustment expenses $ 13 $ 12 $ — $ — General and administrative expenses 17 17 — — Total service cost 30 29 — — Non-Service Cost: Claims and claim adjustment expenses 1 (4 ) 1 — General and administrative expenses 2 (6 ) — 1 Total non-service cost (benefit) 3 (10 ) 1 1 Net periodic benefit cost $ 33 $ 19 $ 1 $ 1 2019. (for the nine months ended Pension Plans Postretirement Benefit Plans September 30, in millions) 2017 2016 2017 2016 Net Periodic Benefit Cost: Service cost $ 90 $ 88 $ — $ — Non-service cost: Interest cost on benefit obligation 96 91 5 6 Expected return on plan assets (180 ) (172 ) — — Settlement — 1 — — Amortization of unrecognized: Prior service benefit (1 ) — (3 ) (3 ) Net actuarial loss 66 50 — — Total non-service cost (benefit) (19 ) (30 ) 2 3 Net periodic benefit cost $ 71 $ 58 $ 2 $ 3 2019. (for the nine months ended Pension Plans Postretirement Benefit Plans September 30, in millions) 2017 2016 2017 2016 Service Cost: Claims and claim adjustment expenses $ 37 $ 36 $ — $ — General and administrative expenses 53 52 — — Total service cost 90 88 — — Non-Service Cost: Claims and claim adjustment expenses (8 ) (13 ) 1 1 General and administrative expenses (11 ) (17 ) 1 2 Total non-service cost (benefit) (19 ) (30 ) 2 3 Net periodic benefit cost $ 71 $ 58 $ 2 $ 3 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 Report. (in millions) TPC Other TRV Eliminations Consolidated Revenues Premiums $ 4,466 $ 2,057 $ — $ — $ 6,523 Net investment income 405 189 7 (13 ) 588 Fee income 113 — — — 113 Net realized investment gains (losses) (1) 6 56 (1 ) — 61 Other revenues 21 21 — (2 ) 40 Total revenues 5,011 2,323 6 (15 ) 7,325 Claims and expenses Claims and claim adjustment expenses 3,191 1,615 — — 4,806 Amortization of deferred acquisition costs 716 343 — — 1,059 General and administrative expenses 723 314 10 (2 ) 1,045 Interest expense 12 — 83 — 95 Total claims and expenses 4,642 2,272 93 (2 ) 7,005 Income (loss) before income taxes 369 51 (87 ) (13 ) 320 Income tax expense (benefit) 74 17 (60 ) (4 ) 27 Net income of subsidiaries — — 329 (329 ) — Net income $ 295 $ 34 $ 302 $ (338 ) $ 293 (in millions) TPC Other TRV Eliminations Consolidated Total OTTI losses $ (2 ) $ (3 ) $ — $ — $ (5 ) OTTI losses recognized in net realized investment gains (losses) $ (2 ) $ (3 ) $ — $ — $ (5 ) OTTI losses recognized in OCI $ — $ — $ — $ — $ — (in millions) TPC Other TRV Eliminations Consolidated Revenues Premiums $ 4,246 $ 1,963 $ — $ — $ 6,209 Net investment income 389 190 3 — 582 Fee income 116 — — — 116 Net realized investment gains (1) 10 12 — 1 23 Other revenues 24 11 — (4 ) 31 Total revenues 4,785 2,176 3 (3 ) 6,961 Claims and expenses Claims and claim adjustment expenses 2,615 1,241 — — 3,856 Amortization of deferred acquisition costs 683 329 — — 1,012 General and administrative expenses 744 312 4 (3 ) 1,057 Interest expense 11 — 78 — 89 Total claims and expenses 4,053 1,882 82 (3 ) 6,014 Income (loss) before income taxes 732 294 (79 ) — 947 Income tax expense (benefit) 194 81 (44 ) — 231 Net income of subsidiaries — — 751 (751 ) — Net income $ 538 $ 213 $ 716 $ (751 ) $ 716 (in millions) TPC Other TRV Eliminations Consolidated Total OTTI losses $ (1 ) $ (3 ) $ — $ — $ (4 ) OTTI losses recognized in net realized investment gains $ (1 ) $ (3 ) $ — $ — $ (4 ) OTTI gains (losses) recognized in OCI $ — $ — $ — $ — $ — (in millions) TPC Other TRV Eliminations Consolidated Revenues Premiums $ 13,039 $ 6,018 $ — $ — $ 19,057 Net investment income 1,218 574 17 (13 ) 1,796 Fee income 342 — — — 342 Net realized investment gains (losses) (1) (2 ) 90 58 — 146 Other revenues 75 42 — (7 ) 110 Total revenues 14,672 6,724 75 (20 ) 21,451 Claims and expenses Claims and claim adjustment expenses 8,794 4,331 — — 13,125 Amortization of deferred acquisition costs 2,077 1,017 — — 3,094 General and administrative expenses 2,163 911 19 (7 ) 3,086 Interest expense 36 — 240 — 276 Total claims and expenses 13,070 6,259 259 (7 ) 19,581 Income (loss) before income taxes 1,602 465 (184 ) (13 ) 1,870 Income tax expense (benefit) 361 125 (117 ) (4 ) 365 Net income of subsidiaries — — 1,581 (1,581 ) — Net income $ 1,241 $ 340 $ 1,514 $ (1,590 ) $ 1,505 (in millions) TPC Other TRV Eliminations Consolidated Total OTTI losses $ (4 ) $ (7 ) $ — $ — $ (11 ) OTTI losses recognized in net realized investment gains (losses) $ (5 ) $ (7 ) $ — $ — $ (12 ) OTTI gains recognized in OCI $ 1 $ — $ — $ — $ 1 (in millions) TPC Other TRV Eliminations Consolidated Revenues Premiums $ 12,492 $ 5,765 $ — $ — $ 18,257 Net investment income 1,142 524 9 — 1,675 Fee income 352 — — — 352 Net realized investment gains (losses) (1) (7 ) 39 — 1 33 Other revenues 105 28 — (18 ) 115 Total revenues 14,084 6,356 9 (17 ) 20,432 Claims and expenses Claims and claim adjustment expenses 7,710 3,620 — — 11,330 Amortization of deferred acquisition costs 1,999 973 — — 2,972 General and administrative expenses 2,191 923 9 (17 ) 3,106 Interest expense 35 — 238 — 273 Total claims and expenses 11,935 5,516 247 (17 ) 17,681 Income (loss) before income taxes 2,149 840 (238 ) — 2,751 Income tax expense (benefit) 584 219 (123 ) — 680 Net income of subsidiaries — — 2,186 (2,186 ) — Net income $ 1,565 $ 621 $ 2,071 $ (2,186 ) $ 2,071 (in millions) TPC Other TRV Eliminations Consolidated Total OTTI losses $ (18 ) $ (18 ) $ — $ — $ (36 ) OTTI losses recognized in net realized investment gains (losses) $ (13 ) $ (13 ) $ — $ — $ (26 ) OTTI losses recognized in OCI $ (5 ) $ (5 ) $ — $ — $ (10 ) (in millions) TPC Other TRV Eliminations Consolidated Net income $ 295 $ 34 $ 302 $ (338 ) $ 293 Other comprehensive income (loss): Changes in net unrealized gains on investment securities: Having no credit losses recognized in the consolidated statement of income — (47 ) 5 — (42 ) Having credit losses recognized in the consolidated statement of income 1 1 — — 2 Net changes in benefit plan assets and obligations — (1 ) (8 ) — (9 ) Net changes in unrealized foreign currency translation 61 52 — — 113 Other comprehensive income (loss) before income taxes and other comprehensive income of subsidiaries 62 5 (3 ) — 64 Income tax expense (benefit) 12 (11 ) 4 — 5 Other comprehensive income (loss), net of taxes, before other comprehensive income of subsidiaries 50 16 (7 ) — 59 Other comprehensive income of subsidiaries — — 66 (66 ) — Other comprehensive income 50 16 59 (66 ) 59 Comprehensive income $ 345 $ 50 $ 361 $ (404 ) $ 352 (in millions) TPC Other TRV Eliminations Consolidated Net income $ 538 $ 213 $ 716 $ (751 ) $ 716 Other comprehensive income (loss): Changes in net unrealized gains on investment securities: Having no credit losses recognized in the consolidated statement of income (323 ) (137 ) 5 — (455 ) Having credit losses recognized in the consolidated statement of income 4 2 — — 6 Net changes in benefit plan assets and obligations 1 — 15 — 16 Net changes in unrealized foreign currency translation (13 ) (18 ) — — (31 ) Other comprehensive income (loss) before income taxes and other comprehensive loss of subsidiaries (331 ) (153 ) 20 — (464 ) Income tax expense (benefit) (120 ) (48 ) 9 — (159 ) Other comprehensive income (loss), net of taxes, before other comprehensive loss of subsidiaries (211 ) (105 ) 11 — (305 ) Other comprehensive loss of subsidiaries — — (316 ) 316 — Other comprehensive loss (211 ) (105 ) (305 ) 316 (305 ) Comprehensive income $ 327 $ 108 $ 411 $ (435 ) $ 411 (in millions) TPC Other TRV Eliminations Consolidated Net income $ 1,241 $ 340 $ 1,514 $ (1,590 ) $ 1,505 Other comprehensive income (loss): Changes in net unrealized gains on investment securities: Having no credit losses recognized in the consolidated statement of income 389 82 (42 ) — 429 Having credit losses recognized in the consolidated statement of income 3 1 — — 4 Net changes in benefit plan assets and obligations — (2 ) 27 — 25 Net changes in unrealized foreign currency translation 100 102 — — 202 Other comprehensive income (loss) before income taxes and other comprehensive income of subsidiaries 492 183 (15 ) — 660 Income tax expense 151 38 1 — 190 Other comprehensive income (loss), net of taxes, before other comprehensive income of subsidiaries 341 145 (16 ) — 470 Other comprehensive income of subsidiaries — — 486 (486 ) — Other comprehensive income 341 145 470 (486 ) 470 Comprehensive income $ 1,582 $ 485 $ 1,984 $ (2,076 ) $ 1,975 (in millions) TPC Other TRV Eliminations Consolidated Net income $ 1,565 $ 621 $ 2,071 $ (2,186 ) $ 2,071 Other comprehensive income: Changes in net unrealized gains on investment securities: Having no credit losses recognized in the consolidated statement of income 732 397 9 — 1,138 Having credit losses recognized in the consolidated statement of income 12 11 — — 23 Net changes in benefit plan assets and obligations 19 20 11 — 50 Net changes in unrealized foreign currency translation 106 (69 ) — — 37 Other comprehensive income before income taxes and other comprehensive income of subsidiaries 869 359 20 — 1,248 Income tax expense 277 144 10 — 431 Other comprehensive income, net of taxes, before other comprehensive income of subsidiaries 592 215 10 — 817 Other comprehensive income of subsidiaries — — 807 (807 ) — Other comprehensive income 592 215 817 (807 ) 817 Comprehensive income $ 2,157 $ 836 $ 2,888 $ (2,993 ) $ 2,888 (in millions) TPC Other TRV Eliminations Consolidated Assets Fixed maturities, available for sale, at fair value (amortized cost $60,727) $ 42,889 $ 19,218 $ 50 $ — $ 62,157 Equity securities, available for sale, at fair value (cost $509) 173 255 173 — 601 Real estate investments 55 868 — — 923 Short-term securities 2,936 1,024 1,899 — 5,859 Other investments 2,666 885 1 — 3,552 Total investments 48,719 22,250 2,123 — 73,092 Cash 165 214 — — 379 Investment income accrued 392 170 6 — 568 Premiums receivable 4,938 2,329 — — 7,267 Reinsurance recoverables 5,791 2,554 — — 8,345 Ceded unearned premiums 612 76 — — 688 Deferred acquisition costs 1,880 197 — — 2,077 Deferred taxes (76 ) 224 95 — 243 Contractholder receivables 3,813 944 — — 4,757 Goodwill 2,593 1,362 — (9 ) 3,946 Other intangible assets 202 143 — — 345 Investment in subsidiaries — — 28,036 (28,036 ) — Other assets 2,247 91 266 — 2,604 Total assets $ 71,276 $ 30,554 $ 30,526 $ (28,045 ) $ 104,311 Liabilities Claims and claim adjustment expense reserves $ 33,358 $ 16,392 $ — $ — $ 49,750 Unearned premium reserves 9,225 4,022 — — 13,247 Contractholder payables 3,813 944 — — 4,757 Payables for reinsurance premiums 249 174 — — 423 Debt 693 — 6,228 — 6,921 Other liabilities 3,946 967 562 — 5,475 Total liabilities 51,284 22,499 6,790 — 80,573 Shareholders’ equity Common stock (1,750.0 shares authorized; 273.8 shares issued and 273.7 shares outstanding) — 390 22,836 (390 ) 22,836 Additional paid-in capital 11,634 6,970 — (18,604 ) — Retained earnings 7,989 683 33,108 (8,670 ) 33,110 Accumulated other comprehensive income (loss) 369 12 (285 ) (381 ) (285 ) Treasury stock, at cost (498.3 shares) — — (31,923 ) — (31,923 ) Total shareholders’ equity 19,992 8,055 23,736 (28,045 ) 23,738 Total liabilities and shareholders’ equity $ 71,276 $ 30,554 $ 30,526 $ (28,045 ) $ 104,311 (in millions) TPC Other TRV Eliminations Consolidated Assets Fixed maturities, available for sale, at fair value (amortized cost $59,650) $ 42,014 $ 18,452 $ 49 $ — $ 60,515 Equity securities, available for sale, at fair value (cost $504) 169 408 155 — 732 Real estate investments 56 872 — — 928 Short-term securities 2,447 791 1,627 — 4,865 Other investments 2,569 878 1 — 3,448 Total investments 47,255 21,401 1,832 — 70,488 Cash 141 164 2 — 307 Investment income accrued 441 183 6 — 630 Premiums receivable 4,545 2,177 — — 6,722 Reinsurance recoverables 5,664 2,623 — — 8,287 Ceded unearned premiums 536 53 — — 589 Deferred acquisition costs 1,741 182 — — 1,923 Deferred taxes 216 224 25 — 465 Contractholder receivables 3,656 953 — — 4,609 Goodwill 2,578 1,002 — — 3,580 Other intangible assets 202 66 — — 268 Investment in subsidiaries — — 27,137 (27,137 ) — Other assets 1,973 370 34 — 2,377 Total assets $ 68,948 $ 29,398 $ 29,036 $ (27,137 ) $ 100,245 Liabilities Claims and claim adjustment expense reserves $ 32,168 $ 15,781 $ — $ — $ 47,949 Unearned premium reserves 8,575 3,754 — — 12,329 Contractholder payables 3,656 953 — — 4,609 Payables for reinsurance premiums 156 117 — — 273 Debt 693 — 5,744 — 6,437 Other liabilities 4,106 1,239 82 — 5,427 Total liabilities 49,354 21,844 5,826 — 77,024 Shareholders’ equity Common stock (1,750.0 shares authorized; 279.6 shares issued and outstanding) — 390 22,614 (390 ) 22,614 Additional paid-in capital 11,634 6,499 — (18,133 ) — Retained earnings 7,933 797 32,185 (8,719 ) 32,196 Accumulated other comprehensive income (loss) 27 (132 ) (755 ) 105 (755 ) Treasury stock, at cost (489.5 shares) — — (30,834 ) — (30,834 ) Total shareholders’ equity 19,594 7,554 23,210 (27,137 ) 23,221 Total liabilities and shareholders’ equity $ 68,948 $ 29,398 $ 29,036 $ (27,137 ) $ 100,245 (in millions) TPC Other TRV Eliminations Consolidated Cash flows from operating activities Net income $ 1,241 $ 340 $ 1,514 $ (1,590 ) $ 1,505 Net adjustments to reconcile net income to net cash provided by operating activities 975 508 285 (49 ) 1,719 Net cash provided by operating activities 2,216 848 1,799 (1,639 ) 3,224 Cash flows from investing activities Proceeds from maturities of fixed maturities 4,961 1,618 2 — 6,581 Proceeds from sales of investments: Fixed maturities 463 397 — — 860 Equity securities 18 202 120 — 340 Real estate investments — 23 — — 23 Other investments 426 190 — (13 ) 603 Purchases of investments: Fixed maturities (5,906 ) (2,493 ) (4 ) — (8,403 ) Equity securities (5 ) (65 ) (123 ) — (193 ) Real estate investments — (40 ) — — (40 ) Other investments (305 ) (87 ) — — (392 ) Net purchases of short-term securities (488 ) (230 ) (272 ) — (990 ) Securities transactions in course of settlement 18 103 1 — 122 Acquisition, net of cash acquired — 25 (477 ) 13 (439 ) Other (192 ) 5 — — (187 ) Net cash used in investing activities (1,010 ) (352 ) (753 ) — (2,115 ) Cash flows from financing activities Treasury stock acquired — share repurchase authorization — — (1,028 ) — (1,028 ) Treasury stock acquired — net employee share-based compensation — — (61 ) — (61 ) Dividends paid to shareholders — — (589 ) — (589 ) Payment of debt — — (207 ) — (207 ) Issuance of debt — — 689 — 689 Issuance of common stock — employee share options — — 148 — 148 Dividends paid to parent company (1,185 ) (454 ) — 1,639 — Net cash used in financing activities (1,185 ) (454 ) (1,048 ) 1,639 (1,048 ) Effect of exchange rate changes on cash 3 8 — — 11 Net increase (decrease) in cash 24 50 (2 ) — 72 Cash at beginning of year 141 164 2 — 307 Cash at end of period $ 165 $ 214 $ — $ — $ 379 Supplemental disclosure of cash flow information Income taxes paid (received) $ 493 $ 174 $ (200 ) $ — $ 467 Interest paid $ 40 $ — $ 177 $ — $ 217 (in millions) TPC Other TRV Eliminations Consolidated Cash flows from operating activities Net income $ 1,565 $ 621 $ 2,071 $ (2,186 ) $ 2,071 Net adjustments to reconcile net income to net cash provided by operating activities 643 92 127 130 992 Net cash provided by operating activities 2,208 713 2,198 (2,056 ) 3,063 Cash flows from investing activities Proceeds from maturities of fixed maturities 4,854 1,788 6 — 6,648 Proceeds from sales of investments: Fixed maturities 458 405 2 — 865 Equity securities 39 32 — — 71 Real estate investments — 69 — — 69 Other investments 399 170 — — 569 Purchases of investments: Fixed maturities (6,016 ) (2,978 ) (10 ) — (9,004 ) Equity securities (5 ) (29 ) (2 ) — (36 ) Real estate investments (1 ) (29 ) — — (30 ) Other investments (328 ) (94 ) — — (422 ) Net (purchases) sales of short-term securities (339 ) 366 (162 ) — (135 ) Securities transactions in course of settlement 422 86 3 — 511 Other (236 ) (4 ) — — (240 ) Net cash used in investing activities (753 ) (218 ) (163 ) — (1,134 ) Cash flows from financing activities Treasury stock acquired — share repurchase authorization — — (1,650 ) — (1,650 ) Treasury stock acquired — net employee share-based compensation — — (71 ) — (71 ) Dividends paid to shareholders — — (569 ) — (569 ) Payment of debt — — (400 ) — (400 ) Issuance of debt — — 491 — 491 Issuance of common stock — employee share options — — 164 — 164 Dividends paid to parent company (1,550 ) (506 ) — 2,056 — Net cash used in financing activities (1,550 ) (506 ) (2,035 ) 2,056 (2,035 ) Effect of exchange rate changes on cash 1 (6 ) — — (5 ) Net decrease in cash (94 ) (17 ) — — (111 ) Cash at beginning of year 225 153 2 — 380 Cash at end of period $ 131 $ 136 $ 2 $ — $ 269 Supplemental disclosure of cash flow information Income taxes paid (received) $ 536 $ 206 $ (94 ) $ — $ 648 Interest paid $ 40 $ — $ 183 $ — $ 223 Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Ended Nine Months Ended (in millions, except ratio and per share amounts) 2017 2016 2017 2016 Revenues Premiums $ 6,523 $ 6,209 $ 19,057 $ 18,257 Net investment income 588 582 1,796 1,675 Fee income 113 116 342 352 Net realized investment gains 61 23 146 33 Other revenues 40 31 110 115 Total revenues 7,325 6,961 21,451 20,432 Claims and expenses Claims and claim adjustment expenses 4,806 3,856 13,125 11,330 Amortization of deferred acquisition costs 1,059 1,012 3,094 2,972 General and administrative expenses 1,045 1,057 3,086 3,106 Interest expense 95 89 276 273 Total claims and expenses 7,005 6,014 19,581 17,681 Income before income taxes 320 947 1,870 2,751 Income tax expense 27 231 365 680 Net income $ 293 $ 716 $ 1,505 $ 2,071 Net income per share Basic $ 1.06 $ 2.48 $ 5.39 $ 7.09 Diluted $ 1.05 $ 2.45 $ 5.34 $ 7.00 Combined ratio Loss and loss adjustment expense ratio 72.8 % 61.2 % 68.0 % 61.2 % Underwriting expense ratio 30.4 31.7 30.7 31.6 Combined ratio 103.2 % 92.9 % 98.7 % 92.8 % 2020 associated with COVID-19 is reflected in the Company's results for the second quarter of 2020. Three Months Ended Nine Months Ended (dollars in millions) 2017 2016 2017 2016 Average investments (1) $ 72,363 $ 70,110 $ 71,577 $ 70,082 Pre-tax net investment income 588 582 1,796 1,675 After-tax net investment income 457 472 1,405 1,353 Average pre-tax yield (2) 3.2 % 3.3 % 3.3 % 3.2 % Average after-tax yield (2) 2.5 % 2.7 % 2.6 % 2.6 % 2019. The National Accounts market in Business Insurance is the primary source of the Company’s fee-based (Losses) Three Months Ended Nine Months Ended (in millions) 2017 2016 2017 2016 Net Realized Investment Gains Other-than-temporary impairment losses $ (5 ) $ (4 ) $ (12 ) $ (26 ) Other net realized investment gains 66 27 158 59 Net realized investment gains $ 61 $ 23 $ 146 $ 33 COVID-19. winter storms and wind storms in several regions of the United States in the first quarter of 2019. 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 2020 ranged from approximately $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 Losses Incurred/Unfavorable (Favorable) Three Months Ended Nine Months Ended Estimated Ultimate Losses (in millions, pre-tax and net of 2017 2016 2017 2016 September 30, December 31, 2015 PCS Serial Number: 68 — Winter storm $ (1 ) $ — $ 3 $ (2 ) $ 132 $ 129 2016 PCS Serial Number: 21 — Severe wind and hail storms (3 ) 1 (1 ) 148 149 150 25 — Severe wind and hail storms — 2 9 165 177 168 2017 PCS Serial Number: 22 — Severe wind and hail storms (2 ) n/a 113 n/a 113 n/a 32 — Severe wind and hail storms 9 n/a 207 n/a 207 n/a 43 — Hurricane Harvey 319 n/a 319 n/a 319 n/a 44 — Hurricane Irma 242 n/a 242 n/a 242 n/a follow. 2019. 2020. 2019. The loss and loss adjustment expense ratio of partially offset by (iii) the net adverse impact of changes in loss estimates across several product lines in Business Insurance initially recognized in the last two quarters of 2019 insurance claims. Gross Written Premiums Three Months Ended Nine Months Ended (in millions) 2017 2016 2017 2016 Business Insurance $ 3,787 $ 3,752 $ 11,852 $ 11,731 Bond & Specialty Insurance 632 618 1,853 1,784 Personal Insurance 2,644 2,428 7,303 6,683 Total $ 7,063 $ 6,798 $ 21,008 $ 20,198 Net Written Premiums Three Months Ended Nine Months Ended (in millions) 2017 2016 2017 2016 Business Insurance $ 3,434 $ 3,388 $ 10,833 $ 10,620 Bond & Specialty Insurance 611 600 1,753 1,692 Personal Insurance 2,615 2,401 7,209 6,588 Total $ 6,660 $ 6,389 $ 19,795 $ 18,900 Three Months Ended Nine Months Ended (dollars in millions) 2017 2016 2017 2016 Revenues Earned premiums $ 3,576 $ 3,497 $ 10,509 $ 10,350 Net investment income 437 431 1,337 1,234 Fee income 108 111 329 340 Other revenues 19 7 43 45 Total revenues $ 4,140 $ 4,046 $ 12,218 $ 11,969 Total claims and expenses $ 4,069 $ 3,487 $ 11,007 $ 10,307 Segment income $ 105 $ 433 $ 976 $ 1,281 Loss and loss adjustment expense ratio 78.1 % 63.5 % 69.1 % 63.5 % Underwriting expense ratio 31.7 32.6 31.9 32.4 Combined ratio 109.8 % 96.1 % 101.0 % 95.9 % for a description of the factors contributing to the under administration associated with its service businesses. as well as installment premium charges and other policyholder service charges. (vii) lower International other loss activity. taxes. 2019. The loss and loss adjustment expense ratio of 2019. The loss and loss adjustment expense ratio of related economic conditions. Gross Written Premiums Three Months Ended Nine Months Ended (in millions) 2017 2016 2017 2016 Domestic: Select Accounts $ 668 $ 673 $ 2,155 $ 2,138 Middle Market 1,991 1,927 6,157 5,898 National Accounts 370 381 1,177 1,292 National Property and Other 517 541 1,499 1,575 Total Domestic 3,546 3,522 10,988 10,903 International 241 230 864 828 Total Business Insurance $ 3,787 $ 3,752 $ 11,852 $ 11,731 Net Written Premiums Three Months Ended Nine Months Ended (in millions) 2017 2016 2017 2016 Domestic: Select Accounts $ 664 $ 657 $ 2,139 $ 2,090 Middle Market 1,896 1,824 5,893 5,628 National Accounts 244 245 751 799 National Property and Other 428 454 1,310 1,385 Total Domestic 3,232 3,180 10,093 9,902 International 202 208 740 718 Total Business Insurance $ 3,434 $ 3,388 $ 10,833 $ 10,620 2019. Gross and net written premiums in both periods of 2020 were negatively impacted by reduced exposures, reflecting the impact of COVID-19 and related economic conditions, including a decrease in new business levels. 2019. Lloyd's and in Canada. Three Months Ended Nine Months Ended (dollars in millions) 2017 2016 2017 2016 Revenues Earned premiums $ 591 $ 573 $ 1,721 $ 1,684 Net investment income 57 59 174 177 Other revenues 5 5 16 14 Total revenues $ 653 $ 637 $ 1,911 $ 1,875 Total claims and expenses $ 462 $ 407 $ 1,303 $ 1,101 Segment income $ 136 $ 165 $ 444 $ 540 Loss and loss adjustment expense ratio 39.5 % 32.0 % 36.6 % 26.8 % Underwriting expense ratio 38.2 38.6 38.7 38.2 Combined ratio 77.7 % 70.6 % 75.3 % 65.0 % taxes. segment income before income taxes. 2019. The increases in both periods of 2020 primarily reflected the increase in net written premiums over the preceding twelve months. Earned premiums in both periods of 2020 were not materially impacted by COVID-19 and related economic conditions. economic conditions. taxes. 2019. The loss and loss adjustment expense ratio of basis, primarily reflecting the impact of higher loss estimates for management liability coverages, including the impact of COVID-19 and related economic conditions. COVID-19 and related economic conditions. Gross Written Premiums Three Months Ended Nine Months Ended (in millions) 2017 2016 2017 2016 Domestic: Management Liability $ 374 $ 365 $ 1,071 $ 1,041 Surety 218 215 641 624 Total Domestic 592 580 1,712 1,665 International 40 38 141 119 Total Bond & Specialty Insurance $ 632 $ 618 $ 1,853 $ 1,784 Net Written Premiums Three Months Ended Nine Months Ended (in millions) 2017 2016 2017 2016 Domestic: Management Liability $ 359 $ 354 $ 1,030 $ 1,010 Surety 212 212 597 584 Total Domestic 571 566 1,627 1,594 International 40 34 126 98 Total Bond & Specialty Insurance $ 611 $ 600 $ 1,753 $ 1,692 2019. Kingdom. Three Months Ended Nine Months Ended (dollars in millions) 2017 2016 2017 2016 Revenues Earned premiums $ 2,356 $ 2,139 $ 6,827 $ 6,223 Net investment income 94 92 285 264 Fee income 5 5 13 12 Other revenues 14 16 45 47 Total revenues $ 2,469 $ 2,252 $ 7,170 $ 6,546 Total claims and expenses $ 2,372 $ 2,023 $ 6,972 $ 5,977 Segment income $ 77 $ 163 $ 178 $ 410 Loss and loss adjustment expense ratio 73.1 % 65.2 % 74.2 % 66.5 % Underwriting expense ratio 26.6 28.3 26.9 28.5 Combined ratio 99.7 % 93.5 % 101.1 % 95.0 % 2019. Net written premiums and earned premiums in both periods of 2020 were reduced by premium refunds provided in the second quarter of 2020 to personal automobile customers in response to COVID-19 and related economic conditions. Installment premium charges in both periods of 2020 were lower than in the same periods of 2019, primarily attributable to the impact of billing relief actions offered to customers as a result of COVID-19. trends and (vi) higher business volumes. premiums before the impact of premium refunds referred to above. 2019. The increases in both periods of 2020 included higher contingent commissions and an increased allowance for expected credit losses on premiums receivable, partially offset by lower travel-related expenses, in each case due to the impact of COVID-19 and related economic conditions. The increases in both periods of 2020 also reflected the impact of higher business volumes. 2019. 2019. The loss and loss adjustment expense ratio of 2020 was 0.7 points lower than the combined ratio of 95.2% in the same period of 2019. The loss and loss adjustment expense ratio of 66.9% in the first six months of 2020 was 1.9 points lower than the loss and loss adjustment expense ratio of 68.8% in the same period of 2019. The underwriting expense ratio of premium refunds provided to personal automobile customers). Gross Written Premiums Three Months Ended Nine Months Ended (in millions) 2017 2016 2017 2016 Domestic: Agency: Automobile $ 1,234 $ 1,099 $ 3,492 $ 3,060 Homeowners and Other 1,123 1,075 3,043 2,923 Total Agency 2,357 2,174 6,535 5,983 Direct-to-Consumer 101 88 272 231 Total Domestic 2,458 2,262 6,807 6,214 International 186 166 496 469 Total Personal Insurance $ 2,644 $ 2,428 $ 7,303 $ 6,683 Net Written Premiums Three Months Ended Nine Months Ended (in millions) 2017 2016 2017 2016 Domestic: Agency: Automobile $ 1,228 $ 1,095 $ 3,474 $ 3,045 Homeowners and Other 1,107 1,058 2,978 2,854 Total Agency 2,335 2,153 6,452 5,899 Direct-to-Consumer 100 87 271 230 Total Domestic 2,435 2,240 6,723 6,129 International 180 161 486 459 Total Personal Insurance $ 2,615 $ 2,401 $ 7,209 $ 6,588 2019. Gross and net written premiums in both periods of 2020 were negatively impacted by premium refunds provided in the second quarter of 2020 to personal automobile customers in response to COVID-19 and related economic conditions. 2019. customers in response to COVID-19 and related economic conditions. related economic conditions. Three Months Ended Nine Months Ended (in millions) 2017 2016 2017 2016 Income (loss) $ (65 ) $ (60 ) $ (188 ) $ (183 ) respectively. 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. 2019, respectively. (at and for the nine months ended September 30, in millions) 2017 2016 Beginning reserves: Gross $ 1,512 $ 1,989 Ceded (186 ) (179 ) Net 1,326 1,810 Incurred losses and loss expenses: Gross 340 355 Ceded (115 ) (130 ) Net 225 225 Paid loss and loss expenses: Gross 232 746 Ceded (39 ) (114 ) Net 193 632 Foreign exchange and other: Gross 1 (1 ) Ceded — — Net 1 (1 ) Ending reserves: Gross 1,621 1,597 Ceded (262 ) (195 ) Net $ 1,359 $ 1,402 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. $60 million in each of the second quarter and first six months of 2019. Net environmental paid loss and loss expenses in the first (at and for the nine months ended September 30, in millions) 2017 2016 Beginning reserves: Gross $ 395 $ 375 Ceded (13 ) (14 ) Net 382 361 Incurred losses and loss expenses: Gross 74 87 Ceded (9 ) (5 ) Net 65 82 Paid loss and loss expenses: Gross 62 52 Ceded (2 ) (2 ) Net 60 50 Foreign exchange and other: Gross 1 1 Ceded — — Net 1 1 Ending reserves: Gross 408 411 Ceded (20 ) (17 ) Net $ 388 $ 394 June 30, 2019, respectively. 2019. December 31, 2019. 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 Report. communicable disease and nuclear, biological and radiological terrorism attacks is excluded for this treaty. Report. (in millions) September 30, December 31, Gross reinsurance recoverables on paid and unpaid claims and claim adjustment expenses $ 3,335 $ 3,181 Allowance for uncollectible reinsurance (110 ) (116 ) Net reinsurance recoverables 3,225 3,065 Mandatory pools and associations 2,010 2,054 Structured settlements 3,110 3,168 Total reinsurance recoverables $ 8,345 $ 8,287 updated accounting guidance for credit losses at January 1, 2020. non-renew certain policies. time. Underlying underwriting margins can be impacted by a number of factors, including variability in non-catastrophe weather, large loss and other loss activity, including losses attributable to COVID-19 and related economic conditions; changes in current period loss estimates resulting from prior period loss development; changes in loss trend; changes in business mix; changes in reinsurance coverages and/or costs; premium adjustments; and variability in expenses and assessments. United States. of $85 million ($66 million after-tax) in the first six months of 2020, driven by the impact of changes in fair value on the Company's equity investments, attributable to the disruption in global financial markets related to COVID-19, as well as $40 million of pre-tax realized losses related to the other-than-temporary impairment of the carrying value of an equity method investment included in other investments. Further changes in global financial markets due to the continuing impact of COVID-19 could result in net realized investment gains or losses in the Company’s investment portfolio. in each case as updated by the Company's periodic filings with the SEC. Report. Net proceeds of approximately $490 million from the Company's issuance of senior debt in April 2020 that are intended to fund the payment of $500 million of senior debt maturing in November 2020 are included in the Company's holding company liquidity at June 30, 2020. 2020. After the maturity of the $500 million of senior debt in November 2020 described above, the Company has no further senior debt or junior subordinated debt maturing until April 2026, at which time $200 million of senior debt will mature. economic conditions. During the three months ended June 30, 2020, the Company did not repurchase any shares under its share repurchase authorization. September 10, 2020. (in millions) September 30, December 31, Debt: Short-term $ 950 $ 550 Long-term 6,004 5,911 Net unamortized fair value adjustments and debt issuance costs (33 ) (24 ) Total debt 6,921 6,437 Shareholders’ equity: Common stock and retained earnings, less treasury stock 24,023 23,976 Accumulated other comprehensive loss (285 ) (755 ) Total shareholders’ equity 23,738 23,221 Total capitalization $ 30,659 $ 29,658 2019. (dollars in millions) September 30, December 31, Total capitalization $ 30,659 $ 29,658 Less: net unrealized gains on investments, net of taxes 1,006 730 Total capitalization excluding net unrealized gains on investments $ 29,653 $ 28,928 Debt-to-total capital ratio 22.6 % 21.7 % Debt-to-total capital ratio excluding net unrealized gains on investments 23.3 % 22.3 % investments, net of taxes, included in shareholders' equity. 2019. September 30, 2017 December 31, 2016 (in millions) Case IBNR Total Case IBNR Total General liability $ 4,900 $ 6,909 $ 11,809 $ 4,951 $ 6,925 $ 11,876 Commercial property 914 691 1,605 752 357 1,109 Commercial multi-peril 1,899 1,968 3,867 1,807 1,935 3,742 Commercial automobile 2,224 1,226 3,450 2,190 1,178 3,368 Workers’ compensation 10,357 9,129 19,486 10,322 8,786 19,108 Fidelity and surety 261 277 538 242 323 565 Personal automobile 1,931 1,253 3,184 1,852 1,038 2,890 Homeowners and personal—other 633 693 1,326 622 468 1,090 International and other 2,782 1,686 4,468 2,740 1,441 4,181 Property-casualty 25,901 23,832 49,733 25,478 22,451 47,929 Accident and health 17 — 17 20 — 20 Claims and claim adjustment expense reserves $ 25,918 $ 23,832 $ 49,750 $ 25,498 $ 22,451 $ 47,949 COVID-19. developments in the tort environment, such as increased attorney involvement in insurance claims and legislation allowing victims of sexual abuse to file or proceed with claims that otherwise would have been time-barred. factors, including the ongoing level of uncertainty related to COVID-19. Company's periodic filings with the SEC. investor.travelers.com related to the transition of payroll and other related human resource applications to a cloud-based technology and concluded they were effective. Period Beginning Period Ending Total number of Average price paid Total number of Approximate July 1, 2017 July 31, 2017 627,978 $ 126.68 627,558 $ 5,154 August 1, 2017 August 31, 2017 1,932,233 $ 128.58 1,932,233 $ 4,906 Sept. 1, 2017 Sept. 30, 2017 544 $ 119.78 — $ 4,906 Total 2,560,755 $ 128.11 2,559,791 $ 4,906 during the three months ended June 30, 2020. The Company acquired statement filed with the SEC on Description of Exhibit 3.1 3.2 31.1† 31.2† 32.1† 32.2† 101.1† The following made. Date: By /S/ Date: By /S/ DOUGLAS K. RUSSELLSeptemberJune 30, 2017oMinnesota41-051886041-0518860 (State or other jurisdiction of
incorporation or organization)
Identification No.)Title of each class Trading Symbol(s) Name of each exchange on which registered Common stock, without par value TRV New York Stock Exchange xý No oand posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). xý No oAct:Act.Large accelerated filer xooo(Do not check if a smaller reporting company)oo☐ No xýOctober 16, 2017July 20, 2020 was 273,695,876.253,191,174.SeptemberJune 30, 20172020PagePage 2019 2019 SeptemberJune 30, 20172020 (Unaudited) and December 31, 20162019 2019 427575767676767778
September 30,
September 30,(1) Total other-than-temporary impairment (OTTI) losses were $(5) million and $(4) million for the three months ended September 30, 2017 and 2016, respectively, and $(11) million and $(36) million for the nine months ended September 30, 2017 and 2016, respectively. Of total OTTI, credit losses of $(5) million and $(4) million for the three months ended September 30, 2017 and 2016, respectively, and $(12) million and $(26) million for the nine months ended September 30, 2017 and 2016, respectively, were recognized in net realized investment gains. In addition, unrealized gains (losses) from other changes in total OTTI of $0 million for each of the three months ended September 30, 2017 and 2016, and $1 million and $(10) million for the nine months ended September 30, 2017 and 2016, respectively, were recognized in other comprehensive income (loss) as part of changes in net unrealized gains on investment securities having credit losses recognized in the consolidated statement of income.Three Months Ended
June 30,Six Months Ended
June 30,2020 2019 2020 2019 Revenues Premiums $ 6,955 $ 6,988 $ 14,184 $ 13,843 Net investment income 268 648 879 1,230 Fee income 114 116 222 225 Net realized investment gains (losses) 13 25 (85) 78 Other revenues 51 57 109 129 Total revenues 7,401 7,834 15,309 15,505 Claims and expenses Claims and claim adjustment expenses 5,107 4,821 9,896 9,263 Amortization of deferred acquisition costs 1,173 1,134 2,351 2,251 General and administrative expenses 1,121 1,125 2,258 2,182 Interest expense 85 89 169 177 Total claims and expenses 7,486 7,169 14,674 13,873 Income (loss) before income taxes (85) 665 635 1,632 Income tax expense (benefit) (45) 108 75 279 Net income (loss) $ (40) $ 557 $ 560 $ 1,353 Net income (loss) per share Basic $ (0.16) $ 2.11 $ 2.19 $ 5.12 Diluted $ (0.16) $ 2.10 $ 2.19 $ 5.08 Weighted average number of common shares outstanding Basic 251.6 261.3 253.6 262.1 Diluted 251.6 263.7 254.7 264.2 Cash dividends declared per common share $ 0.85 $ 0.82 $ 1.67 $ 1.59
September 30,
September 30,Three Months Ended
June 30,Six Months Ended
June 30,2020 2019 2020 2019 Net income (loss) $ (40) $ 557 $ 560 $ 1,353 Other comprehensive income Changes in net unrealized gains on investment securities: Having no credit losses recognized in the consolidated statement of income (loss) 2,359 1,108 1,784 2,524 Having credit losses recognized in the consolidated statement of income (loss) 3 (4) (3) 1 Net changes in benefit plan assets and obligations 21 14 44 26 Net changes in unrealized foreign currency translation 52 5 (216) 55 Other comprehensive income before income taxes 2,435 1,123 1,609 2,606 Income tax expense 504 235 367 541 Other comprehensive income, net of taxes 1,931 888 1,242 2,065 Comprehensive income $ 1,891 $ 1,445 $ 1,802 $ 3,418
2017
2016June 30,
2020December 31,
2019(Unaudited) Assets Fixed maturities, available for sale, at fair value (amortized cost $65,430 and $65,281; allowance for expected credit losses of $8 at June 30, 2020) $ 70,054 $ 68,134 390 425 Real estate investments 962 963 Short-term securities 6,087 4,943 Other investments 3,108 3,419 Total investments 80,601 77,884 Cash 623 494 Investment income accrued 596 618 Premiums receivable (net of allowance for expected credit losses of $94 at June 30, 2020) 8,459 7,909 Reinsurance recoverables (net of allowance for estimated uncollectible reinsurance of $156 at June 30, 2020) 8,093 8,235 Ceded unearned premiums 945 689 Deferred acquisition costs 2,367 2,273 Contractholder receivables (net of allowance for expected credit losses of $22 at June 30, 2020) 4,314 4,599 Goodwill 3,925 3,961 Other intangible assets 319 330 Other assets 3,095 3,130 Total assets $ 113,337 $ 110,122 Liabilities Claims and claim adjustment expense reserves $ 53,109 $ 51,849 Unearned premium reserves 15,198 14,604 Contractholder payables 4,336 4,619 Payables for reinsurance premiums 567 363 Deferred taxes 409 137 Debt 7,049 6,558 Other liabilities 5,726 6,049 Total liabilities 86,394 84,179 Shareholders’ equity Common stock (1,750.0 shares authorized; 253.2 and 255.5 shares issued and outstanding) 23,606 23,469 Retained earnings 37,069 36,977 Accumulated other comprehensive income 1,882 640 Treasury stock, at cost (525.9 and 522.1 shares) (35,614) (35,143) Total shareholders’ equity 26,943 25,943 Total liabilities and shareholders’ equity $ 113,337 $ 110,122 Three Months Ended
June 30,Six Months Ended
June 30,2020 2019 2020 2019 Common stock Balance, beginning of period $ 23,542 $ 23,243 $ 23,469 $ 23,144 Employee share-based compensation 29 91 56 145 Compensation amortization under share-based plans and other changes 35 38 81 83 Balance, end of period 23,606 23,372 23,606 23,372 Retained earnings Balance, beginning of period 37,325 35,795 36,977 35,204 Cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2020 — — (43) — Net income (loss) (40) 557 560 1,353 Dividends (218) (217) (428) (421) Other 2 — 3 (1) Balance, end of period 37,069 36,135 37,069 36,135 Accumulated other comprehensive income (loss), net of tax Balance, beginning of period (49) (682) 640 (1,859) Other comprehensive income 1,931 888 1,242 2,065 Balance, end of period 1,882 206 1,882 206 Treasury stock, at cost Balance, beginning of period (35,614) (34,016) (35,143) (33,595) Treasury stock acquired — share repurchase authorization — (375) (425) (750) Net shares acquired related to employee share-based compensation plans — (1) (46) (47) Balance, end of period (35,614) (34,392) (35,614) (34,392) Total shareholders’ equity $ 26,943 $ 25,321 $ 26,943 $ 25,321 Common shares outstanding Balance, beginning of period 252.8 261.9 255.5 263.6 Treasury stock acquired — share repurchase authorization — (2.6) (3.5) (5.5) Net shares issued under employee share-based compensation plans 0.4 1.0 1.2 2.2 Balance, end of period 253.2 260.3 253.2 260.3 Six Months Ended June 30, 2020 2019 Cash flows from operating activities Net income $ 560 $ 1,353 Adjustments to reconcile net income to net cash provided by operating activities: Net realized investment (gains) losses 85 (78) Depreciation and amortization 391 401 Deferred federal income tax expense (benefit) (71) 10 Amortization of deferred acquisition costs 2,351 2,251 Equity in (income) loss from other investments 186 (132) Premiums receivable (571) (779) Reinsurance recoverables 60 151 Deferred acquisition costs (2,453) (2,408) Claims and claim adjustment expense reserves 1,455 329 Unearned premium reserves 643 958 Other (344) (264) Net cash provided by operating activities 2,292 1,792 Cash flows from investing activities Proceeds from maturities of fixed maturities 3,071 3,038 Proceeds from sales of investments: Fixed maturities 1,220 1,495 Equity securities 54 71 Other investments 139 240 Purchases of investments: Fixed maturities (4,790) (5,708) Equity securities (59) (41) Real estate investments (24) (85) Other investments (228) (262) Net sales (purchases) of short-term securities (1,147) 497 Securities transactions in course of settlement 94 223 Other (144) (169) Net cash used in investing activities (1,814) (701) Cash flows from financing activities Treasury stock acquired — share repurchase authorization (425) (750) Treasury stock acquired — net employee share-based compensation (46) (47) Dividends paid to shareholders (426) (419) Payment of debt — (500) Issuance of debt 490 492 Issuance of common stock — employee share options 65 174 Net cash used in financing activities (342) (1,050) Effect of exchange rate changes on cash (7) 2 Net increase in cash 129 43 Cash at beginning of year 494 373 Cash at end of period $ 623 $ 416 Supplemental disclosure of cash flow information Income taxes paid $ 17 $ 325 Interest paid $ 166 $ 171 20162019 (the Company’s 20162019 Annual Report) as updated by the Company’s Current Report on Form 8-K filed on June 20, 2017. The Form 8-K was filed to reclassify certain of the Company’s historical segment information to conform the presentation of such segment information to the manner in which the Company’s businesses have been managed beginning April 1, 2017 (as described in more detail below) and reflect the revised names and descriptions of certain businesses comprising these segments and other related changes.On August 4, 2017, Certain reclassifications have been made to the Company completed its previously announced acquisition2019 financial statements to conform to the 2020 presentation.all issuedAccounting Standardsoutstanding shares of Simply Business Holdings LTD (Simply Business), a leading provider of small business insurance policies inExchange Commission (SEC) adopted amendments to the United Kingdom, for a purchase price of approximately $464 million, which included the repayment of debt and other obligations of Simply Business. In addition, the Company issued 95,953 shares of restricted common stock valued at approximately $12 millionfinancial disclosure requirements related to certain employees of Simply Business who were equity holders of Simply Business. Subjectdebt securities, including registered debt securities issued by a wholly-owned, operating subsidiary that are fully and unconditionally guaranteed by the parent company. Prior to the satisfactionamendments, a parent guarantor was required to provide condensed consolidating financial information for so long as the guaranteed securities were outstanding, regardless of certain conditions, 50%whether the subsidiary issuer could have suspended its public reporting obligations under the applicable SEC requirements with respect to the securities. In accordance with the amended requirements, a parent guarantor may cease providing the condensed consolidating financial information if the corresponding subsidiary issuer’s public reporting obligation is suspended. The amendments to the financial disclosure requirements are effective on January 4, 2021; however, the SEC permits voluntary compliance in advance of the restricted stock will vest two years from the issuance date and the remainder will vest three years from the issuanceeffective date. The Company used a portionelected to apply the amended requirements beginning with the quarter ended March 31, 2020, and is no longer providing condensed consolidating financial information that resulted from the registered debt obligations of its subsidiaries, Travelers Property Casualty Corp. and Travelers Insurance Group Holdings Inc., that were disclosed in note 8 of the net proceeds fromfinancial statements in the issuanceCompany’s 2019 Annual Report.senior notes in May 2017 (described in more detail in note 8) and internal resources to fund this transaction.Adoption of Accounting StandardsInvestments — Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of AccountingMarchJune 2016, the Financial Accounting Standards Board (FASB) issued updated guidance that eliminates the requirement to retroactively apply the equity method of accounting when an investment that was previously accounted for using another method of accounting becomes qualified to apply the equity method due to an increase in the level of ownership interest or degree of influence. If the investment was previously accounted for as an available-for-sale security, any related unrealized gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for the equity method is recognized through earnings.accounting for credit losses for financial instruments. The updated guidance was effectiveapplies a new credit loss model (current expected credit losses or CECL) for reporting periods beginning after December 15, 2016,determining credit-related impairments for financial instruments measured at amortized cost (including reinsurance recoverables and was applied prospectively.structured settlements that are recorded as part of reinsurance recoverables) and requires an entity to estimate the credit losses expected over the life of an exposure or pool of exposures. The adoptionestimate of this guidance did not have a material effectexpected credit losses should consider historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. The expected credit losses, and subsequent adjustments to such losses, are recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the Company’s results of operations, financial position or liquidity.Derivatives and Hedging: Contingent Put and Call Options in Debt InstrumentsIn March 2016,consolidated balance sheet at the FASB issued updated guidance clarifying that when a call (put) option in a debt instrument can accelerate the repayment of principal on the debt instrument, a reporting entity does not needamount expected to assess whether the contingent event that triggers the ability to exercise the call (put) option is related to interest rates or credit risk in determining whether the option should be accounted for separately. collected.was effectivealso amends the previous other-than-temporary impairment model for reporting periods beginning after December 15, 2016. The adoptionavailable-for-sale debt securities by requiring the recognition of this guidance did not haveimpairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a material effect onsecurity’s amortized cost basis and its fair value. In addition, the Company’s resultslength of operations, financialtime a security has been in an unrealized loss position or liquidity.Compensation — Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit CostIn March 2017, the FASB issued updated guidance to improve the presentation of net periodic pension cost and net periodic post retirement cost (net benefit costs). Net benefit costs comprise several components that reflect different aspects of an employer’s financial arrangements as well as the cost of benefits provided to employees. The update requires that the employer service cost component be reported in the same lines as other employee compensation cost and that the other components (non-service costs) be presented separately from the service cost and outside of a subtotal of income from operations if one is presented. The update also allows only the service cost component to be eligible for capitalization in assets when applicable.The updated guidance is effective for reporting periods beginning after December 15, 2017. The update is to be applied retrospectively with respect to the presentation of service cost and non-service cost and prospectively with respect to applying the service cost only eligible for capitalization in assets guidance. Early adoption is permitted as of the first interim period of an annual period if an entity issues interim financial statements.effectivefor the quarter ended March 31, 2020. For available-for-sale debt securities, the updated guidance was applied prospectively. For financial instruments measured at amortized cost, the updated guidance was applied by a cumulative effect adjustment to the opening balance of retained earnings as of January 1, 2017. See note 12 which has been expanded to disclose2020, the amountbeginning of service cost and non-service cost componentsthe period of net periodic benefit cost and the line itemsadoption. The adoption of this guidance resulted in the consolidated statementrecognition of income in which such amountsan after-tax cumulative effect adjustment of $43 million to reflect the impact of recognizing expected credit losses, as compared to incurred credit losses recognized under the previous guidance. This adjustment is primarily associated with structured settlements that are reported.recorded as part of reinsurance recoverables. The updated guidance with respect to only service costs being eligiblecumulative effect adjustment decreased retained earnings as of January 1, 2020 and increased the allowance for capitalization in assets was not applicable.yearsperiods presented, see the “Adoption of Accounting Standards” section of note 1 of notes to the consolidated financial statements in the Company’s 20162019 Annual Report as updated by the Company’s Current Report on Form 8-K filed on June 20, 2017.Compensation — Stock Compensation: Scope of Modification AccountingIn May 2017, the FASB issued updated guidance related to a change to the terms or conditions (modification) of a share-based payment award. The updated guidance provides that an entity should account for the effects of a modification unless the fair value and vesting conditions of the modified award and the classification of the modified award (equity or liability instrument) are the same as the original award immediately before the modification.The updated guidance is effective for the quarter ending March 31, 2018. The update is to be applied prospectively to an award modified on or after the adoption date. Early adoption is permitted in any interim periods for which financial statements have not yet been made available for issuance.The Company adopted the updated guidance effective April 1, 2017. The adoption did not have an effect on the Company’s results of operations, financial position or liquidity.Adopted”Adopted” section of note 1 of notes to the consolidated financial statements in the Company’s 20162019 Annual Report Report.updateddescribed above.Current Report on Form 8-K filed on June 20, 2017.Effective April 1, 2017, and as reported in the Company’s Form 10-Q for the quarter ended June 30, 2017, thethree3 business segments — Business Insurance, Bond & Specialty Insurance and Personal Insurance, reflecting a change inInsurance. These segments reflect the manner in which the Company’s businesses were beingare currently managed as of that date, as well as theand 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. While the segmentation ofFor more information regarding the Company’s domestic businesses was unchanged,nature of operations, see the “Nature of Operations” section of note 1 of notes to the consolidated financial statements in the Company’s international businesses, which were previously managed and reported in total within the Business and International Insurance segment, were disaggregated by product type among the three newly aligned reportable business segments. All prior periods presented have been reclassified to conform to this presentation. In connection with these changes, the Company revised the names and descriptions of certain businesses comprising the Company’s segments and has reflected other related changes.THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)1.BASIS OF PRESENTATION AND ACCOUNTING POLICIESThe reportable business segments are as follows:Business InsuranceBusiness Insurance offers a broad array of property and casualty insurance and insurance related services to its customers, primarily in the United States, as well as in Canada, the United Kingdom, the Republic of Ireland, Brazil and throughout other parts of the world as a corporate member of Lloyd’s.Business Insurance is comprised of Select Accounts, Middle Market, National Accounts, National Property and Other, and International. Business Insurance also includes Simply Business, as well as Business Insurance Other, which comprises the Special Liability Group (which manages the Company’s asbestos and environmental liabilities) and the assumed reinsurance and certain other runoff operations.Bond & Specialty InsuranceBond & Specialty Insurance provides surety, fidelity, management liability, professional liability, and other property and casualty coverages and related risk management services to its customers in the United States and certain specialty insurance products in Canada, the United Kingdom, the Republic of Ireland and Brazil, utilizing various degrees of financially-based underwriting approaches.Personal InsurancePersonal Insurance writes a broad range of property and casualty insurance covering individuals’ personal risks, primarily in the United States, as well as in Canada. The primary products of automobile and homeowners insurance are complemented by a broad suite of related coverages.THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued2.SEGMENT INFORMATION(For the three months ended June 30, in millions) Business
InsuranceBond & Specialty
InsurancePersonal
InsuranceTotal
Reportable
Segments2020 Premiums $ 3,735 $ 693 $ 2,527 $ 6,955 Net investment income 180 42 46 268 Fee income 108 — 6 114 Other revenues 36 5 10 51 $ 4,059 $ 740 $ 2,589 $ 7,388 $ (58) $ 72 $ 10 $ 24 2019 Premiums $ 3,783 $ 632 $ 2,573 $ 6,988 Net investment income 481 58 109 648 Fee income 111 — 5 116 Other revenues 30 6 21 57 $ 4,405 $ 696 $ 2,708 $ 7,809 $ 351 $ 174 $ 88 $ 613
ended September 30,
in millions)
Insurance
Insurance
Insurance
Reportable
Segments. and revenues included in "interest expense and other." Segment income (loss) for reportable business segments equals net income (loss) excluding the after-tax impact of net realized investment gains (losses) and income (loss) from "interest expense and other."(For the six months ended June 30, in millions) Business
InsuranceBond & Specialty
InsurancePersonal
InsuranceTotal
Reportable
Segments2020 Premiums $ 7,599 $ 1,360 $ 5,225 $ 14,184 Net investment income 633 97 149 879 Fee income 210 — 12 222 Other revenues 67 10 32 109 $ 8,509 $ 1,467 $ 5,418 $ 15,394 $ 231 $ 194 $ 346 $ 771 2019 Premiums $ 7,525 $ 1,238 $ 5,080 $ 13,843 Net investment income 908 114 208 1,230 Fee income 215 — 10 225 Other revenues 73 12 43 128 $ 8,721 $ 1,364 $ 5,341 $ 15,426 $ 765 $ 312 $ 366 $ 1,443 .
ended September 30,
in millions)
Insurance
Insurance
Insurance
Reportable
Segments(1) Segment revenues for reportable business segments exclude net realized investment gains (losses). Segment and income for reportable business segments equals net income excluding the after-tax impact of net realized investment gains (losses). Three Months Ended
June 30,Six Months Ended
June 30,(in millions) 2020 2019 2020 2019 Revenue reconciliation Earned premiums Business Insurance: Domestic: Workers’ compensation $ 818 $ 950 $ 1,717 $ 1,922 Commercial automobile 676 647 1,360 1,275 Commercial property 514 473 1,022 933 General liability 580 585 1,181 1,152 Commercial multi-peril 883 856 1,769 1,696 Other 11 9 23 17 Total Domestic 3,482 3,520 7,072 6,995 International 253 263 527 530 Total Business Insurance 3,735 3,783 7,599 7,525 Bond & Specialty Insurance: Domestic: Fidelity and surety 271 258 528 504 General liability 296 266 583 523 Other 60 53 118 105 Total Domestic 627 577 1,229 1,132 International 66 55 131 106 Total Bond & Specialty Insurance 693 632 1,360 1,238 Personal Insurance: Domestic: Automobile 1,154 1,321 2,505 2,618 Homeowners and Other 1,221 1,078 2,397 2,117 Total Domestic 2,375 2,399 4,902 4,735 International 152 174 323 345 Total Personal Insurance 2,527 2,573 5,225 5,080 Total earned premiums 6,955 6,988 14,184 13,843 Net investment income 268 648 879 1,230 Fee income 114 116 222 225 Other revenues 51 57 109 128 Total segment revenues 7,388 7,809 15,394 15,426 Other revenues — — — 1 Net realized investment gains (losses) 13 25 (85) 78 Total revenues $ 7,401 $ 7,834 $ 15,309 $ 15,505 Income reconciliation, net of tax Total segment income $ 24 $ 613 $ 771 $ 1,443 (74) (76) (145) (151) Core income (loss) (50) 537 626 1,292 Net realized investment gains (losses) 10 20 (66) 61 Net income (loss) $ (40) $ 557 $ 560 $ 1,353
September 30,
September 30,$61$67 million and $57$70 million infor the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively, and $179$133 million and $177$140 million infor the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively.
2017
2016(in millions) June 30,
2020December 31,
2019Asset reconciliation Business Insurance $ 86,136 $ 83,896 Bond & Specialty Insurance 9,155 8,599 Personal Insurance 17,427 17,015 Total assets by reportable segment 112,718 109,510 619 612 Total consolidated assets $ 113,337 $ 110,122 Septemberboth June 30, 20172020 and December 31, 20162019 were accrued over-funded benefit plan assets related to the Company’s qualified domestic pension plan and other intangible assets and deferred taxes. Amortized Cost Allowance for Expected Credit Losses Gross Unrealized Fair Value (at June 30, 2020, in millions) Gains Losses U.S. Treasury securities and obligations of U.S. government and government agencies and authorities $ 2,046 $ — $ 49 $ — $ 2,095 Obligations of states, municipalities and political subdivisions: Local general obligation 16,040 — 1,225 1 17,264 Revenue 10,298 — 818 — 11,116 State general obligation 1,144 — 83 — 1,227 Pre-refunded 2,328 — 133 — 2,461 Total obligations of states, municipalities and political subdivisions 29,810 — 2,259 1 32,068 Debt securities issued by foreign governments 1,023 — 28 — 1,051 Mortgage-backed securities, collateralized mortgage obligations and pass-through securities 2,910 — 174 — 3,084 All other corporate bonds 29,619 8 2,184 62 31,733 Redeemable preferred stock 22 — 1 — 23 Total $ 65,430 $ 8 $ 4,695 $ 63 $ 70,054 Amortized Gross Unrealized Fair (at December 31, 2019, in millions) Cost Gains Losses Value U.S. Treasury securities and obligations of U.S. government and government agencies and authorities $ 2,076 $ 19 $ — $ 2,095 Obligations of states, municipalities and political subdivisions: Local general obligation 15,490 829 4 16,315 Revenue 9,731 586 2 10,315 State general obligation 1,167 64 — 1,231 Pre-refunded 1,968 88 — 2,056 Total obligations of states, municipalities and political subdivisions 28,356 1,567 6 29,917 Debt securities issued by foreign governments 1,167 8 2 1,173 Mortgage-backed securities, collateralized mortgage obligations and pass-through securities 3,192 91 3 3,280 All other corporate bonds 30,442 1,195 18 31,619 Redeemable preferred stock 48 2 — 50 Total $ 65,281 $ 2,882 $ 29 $ 68,134 $3.83$2.46 billion and $5.16$2.06 billion at SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively, were bonds for which states or municipalities have established irrevocable trusts, almost exclusively comprised of U.S. Treasury securities and obligations of U.S. government and government agencies and authorities. These trusts were created to fund the payment of principal and interest due under the bonds.$860 million$1.22 billion and $865 million$1.50 billion during the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively. Gross gains of $28$31 million and $60$35 million and gross losses of $6$1 million and $10$4 million were realized on those sales during the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively.Proceeds from sales Fair (at June 30, 2020, in millions) Cost Gross Gains Gross Losses Value Public common stock $ 344 $ 30 $ 23 $ 351 Non-redeemable preferred stock 34 6 1 39 Total $ 378 $ 36 $ 24 $ 390 Fair (at December 31, 2019, in millions) Cost Gross Gains Gross Losses Value Public common stock $ 341 $ 45 $ 3 $ 383 Non-redeemable preferred stock 35 7 — 42 Total $ 376 $ 52 $ 3 $ 425 classifiedstill held as availableof June 30, 2020 and 2019, respectively. Net realized investment losses on equity securities still held for salethe first six months of 2020 were $340 million and $71 million duringdriven by the nine months ended September 30, 2017 and 2016, respectively. Gross gainsimpact of $146 million and $12 million and gross losses of $1 million and $3 million were realized on those sales duringchanges in fair value attributable to the nine months ended September 30, 2017 and 2016, respectively.SeptemberJune 30, 20172020 and December 31, 2016,2019, the aggregate fair value and gross unrealized loss by length of time those securities have been continuously in an unrealized loss position. The fair value amounts reported in the tables are estimates that are prepared using the process described in note 4 herein and in note 4 of notes to the consolidated financial statements in the Company’s 20162019 Annual Report as updated by the Company’s Current Report on Form 8-K filed on June 20, 2017. Report. The Company also relies upon estimates of several credit and non-credit factors in its review and evaluation of individual investments, using the process described in note 1 of notes to the consolidated financial statements into determine whether credit impairment exists. Less than 12 months 12 months or longer Total (at June 30, 2020, in millions) Fair
ValueGross
Unrealized
LossesFair
ValueGross
Unrealized
LossesFair
ValueGross
Unrealized
LossesFixed maturities U.S. Treasury securities and obligations of U.S. government and government agencies and authorities $ 46 $ — $ — $ — $ 46 $ — Obligations of states, municipalities and political subdivisions 334 1 — — 334 1 Debt securities issued by foreign governments 12 — — — 12 — Mortgage-backed securities, collateralized mortgage obligations and pass-through securities 25 — 2 — 27 — All other corporate bonds 1,079 51 141 11 1,220 62 Total $ 1,496 $ 52 $ 143 $ 11 $ 1,639 $ 63 Less than 12 months 12 months or longer Total (at December 31, 2019, in millions) Fair
ValueGross
Unrealized
LossesFair
ValueGross
Unrealized
LossesFair
ValueGross
Unrealized
LossesFixed maturities U.S. Treasury securities and obligations of U.S. government and government agencies and authorities $ 5 $ — $ 193 $ — $ 198 $ — Obligations of states, municipalities and political subdivisions 668 6 12 — 680 6 Debt securities issued by foreign governments 257 1 147 1 404 2 Mortgage-backed securities, collateralized mortgage obligations and pass-through securities 399 2 131 1 530 3 All other corporate bonds 1,571 10 662 8 2,233 18 Total $ 2,900 $ 19 $ 1,145 $ 10 $ 4,045 $ 29 Company’s 2016 Annual Report as updated by the Company’s Current Report on Form 8-K filed on June 20, 2017, in determining whether such investments are other-than-temporarily impaired.
Value
Unrealized
Losses
Value
Unrealized
Losses
Value
Unrealized
LossesTHE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued3.INVESTMENTS, Continued
longer
Value
Unrealized
Losses
Value
Unrealized
Losses
Value
Unrealized
LossesUnrealizedamount of gross unrealized losses for all fixed maturities and equity securitiesmaturity investments reported at fair value for which fair value iswas less than 80% of amortized cost at Septemberwas not significant.Fixed Maturities (for the three months ended June 30, 2020 in millions) Mortgage-Backed Securities, Collateralized Mortgage Obligations and Pass-Through Securities All Other Corporate Bonds Total Balance, April 1, 2020 $ — $ 4 $ 4 Additions for expected credit losses on securities where no credit losses were previously recognized — 4 4 Additions (reductions) for expected credit losses on securities where credit losses were previously recognized — — — Reductions due to sales/defaults of credit-impaired securities — — — — — — Balance, June 30, 2020 $ — $ 8 $ 8 2017 totaled $12020 included $2 millionrepresenting less than 1% of the combinedcredit losses on fixed maturity and equity security portfoliossecurities which the Company intends to sell. An allowance for expected credit losses was not previously recorded for these securities.Fixed Maturities (for the six months ended June 30, 2020 in millions) Mortgage-Backed Securities, Collateralized Mortgage Obligations and Pass-Through Securities All Other Corporate Bonds Total Balance, January 1, 2020 $ — $ — $ — Additions for expected credit losses on securities where no credit losses were previously recognized — 8 8 Additions (reductions) for expected credit losses on securities where credit losses were previously recognized — — — Reductions due to sales/defaults of credit-impaired securities — — — — — — Balance, June 30, 2020 $ — $ 8 $ 8 a pre-tax basis and less than 1% of shareholders’ equity on an after-tax basis.Impairment ChargesImpairmentfixed maturity securities which the Company intends to sell. An allowance for expected credit losses was not previously recorded for these securities.$5$46 million and $4$1 million for the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively, and $12$62 million and $26$2 million for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively.The cumulative amount Additionally, net realized investment gains (losses) for the second quarter of credit2020 included $40 million of realized losses on fixed maturities held at September 30, 2017 and 2016, that were recognized inrelated to the consolidated statement of income from other-than-temporary impairments (OTTI) and for which a portionimpairment of the OTTI was recognizedcarrying value of an equity method investment included in other comprehensive income (loss) ininvestments. Credit losses related to the consolidated balance sheet was $82 millionfixed maturity portfolio for the three months and $86 million, respectively. These credit losses representsix months ended June 30, 2020 and 2019 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 at both dates. There were no significant changesJune 30, 2020 and 2019. credit componentfirst quarter of OTTI during the nine months ended September 30, 2017 and 20162020 associated with COVID-19 on net investment income from that disclosed in note 3 of notes to the consolidated financial statementsthese investments is reflected in the Company’s 2016 Annual Report as updated by the Company’s Current Report on Form 8-K filed on June 20, 2017.Derivative Financial InstrumentsFrom time to time, the Company enters into U.S. Treasury note futures contracts to modify the effective duration of specific assets within the investment portfolio. U.S. Treasury futures contracts require a daily mark-to-market and settlement with the broker. At both September 30, 2017 and December 31, 2016, the Company had $400 million notional value of open U.S. Treasury futures contracts. Net realized investment losses related to U.S. Treasury futures contractsCompany's results for the three months and nine months ended September 30, 2017 and 2016 were not significant.THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued···98%99% of its fixed maturities at both SeptemberJune 30, 20172020 and December 31, 2016.ananother internal pricing matrix withthat includes some unobservable inputs that are significant to the valuation. Due to the limited amount of observable market information, the Company includes the fair value estimates for these particular bonds in Level 3. The fair value of the fixed maturities for which the Company used anthis internal pricing matrix was $123$89 million and $99$73 million at SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively. Additionally, the Company holds a small amount of other fixed maturity investments that have characteristics that make them unsuitable for matrix pricing. For these fixed maturities, the Company obtains a quote from a broker (primarily the market maker). The fair value of the fixed maturities for which the Company received a broker quote was $75$3 million and $85$28 million at SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively. Due to the disclaimers on the quotes that indicate that the price is indicative only, the Company includes these fair value estimates in Level 3.20162019 Annual Report as updated byReport.Company’s Current ReportCompany to acquire the remaining shares of the acquired company at a future date. The fair value of the put/call at June 30, 2020 and December 31, 2019 was $7 million and $8 million, respectively, and was determined using an internal model and is based on Form 8-K filed on June 20, 2017.An investment transferred between levels during a period is transferred at its fair value as of the beginning of that period.(at June 30, 2020, in millions) Total Level 1 Level 2 Level 3 Invested assets: Fixed maturities U.S. Treasury securities and obligations of U.S. government and government agencies and authorities $ 2,095 $ 2,095 $ — $ — Obligations of states, municipalities and political subdivisions 32,068 — 32,056 12 Debt securities issued by foreign governments 1,051 — 1,051 — Mortgage-backed securities, collateralized mortgage obligations and pass-through securities 3,084 — 3,084 — All other corporate bonds 31,733 2 31,651 80 Redeemable preferred stock 23 — 23 — Total fixed maturities 70,054 2,097 67,865 92 Equity securities Public common stock 351 351 — — Non-redeemable preferred stock 39 10 29 — Total equity securities 390 361 29 — Other investments 32 14 — 18 Total $ 70,476 $ 2,472 $ 67,894 $ 110 Other liabilities $ 7 $ — $ — $ 7 During the nine months ended September 30, 2017 and the year ended December 31, 2016, the Company’s transfers between Level 1 and Level 2 were not significant.(at December 31, 2019, in millions) Total Level 1 Level 2 Level 3 Invested assets: Fixed maturities U.S. Treasury securities and obligations of U.S. government and government agencies and authorities $ 2,095 $ 2,095 $ — $ — Obligations of states, municipalities and political subdivisions 29,917 — 29,905 12 Debt securities issued by foreign governments 1,173 — 1,173 — Mortgage-backed securities, collateralized mortgage obligations and pass-through securities 3,280 — 3,280 — All other corporate bonds 31,619 — 31,530 89 Redeemable preferred stock 50 — 50 — Total fixed maturities 68,134 2,095 65,938 101 Equity securities Public common stock 383 383 — — Non-redeemable preferred stock 42 13 29 — Total equity securities 425 396 29 — Other investments 36 16 — 20 Total $ 68,595 $ 2,507 $ 65,967 $ 121 Other liabilities $ 8 $ — $ — $ 8 ninesix months ended SeptemberJune 30, 20172020 or the year ended December 31, 2016.THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued4. FAIR VALUE MEASUREMENTS, Continued
Value
Value
Value
ValueThe Company utilized a pricing service to estimate fair value for approximately 98% of short-term securities at both September 30, 2017 and December 31, 2016. For a description of the process and inputs used by the pricing service to estimate fair value, see the “Fixed Maturities” section in note 4 of notes to the consolidated financial statements in the Company’s 2016 Annual Report as updated by the Company’s Current Report on Form 8-K filed on June 20, 2017.The Company utilized a pricing service to estimate fair value for 100% of its debt at September 30, 2017 and December 31, 2016.(at June 30, 2020, in millions) Carrying
ValueFair
ValueLevel 1 Level 2 Level 3 Financial assets Short-term securities $ 6,087 $ 6,087 $ 2,139 $ 3,898 $ 50 Financial liabilities Debt $ 6,949 $ 9,059 $ — $ 9,059 $ — Commercial paper $ 100 $ 100 $ — $ 100 $ — (at December 31, 2019, in millions) Carrying
ValueFair
ValueLevel 1 Level 2 Level 3 Financial assets Short-term securities $ 4,943 $ 4,943 $ 685 $ 4,204 $ 54 Financial liabilities Debt $ 6,458 $ 8,049 $ — $ 8,049 $ — Commercial paper $ 100 $ 100 $ — $ 100 $ — ninesix months ended SeptemberJune 30, 20172020 or year ended December 31, 2016.At and For the Three Months Ended June 30, 2020 At and For the Six Months Ended June 30, 2020 (in millions) Premiums Receivable, Net of Allowance for Expected Credit Losses Allowance for Expected Credit Losses Premiums Receivable, Net of Allowance for Expected Credit Losses Allowance for Expected Credit Losses Balance, beginning of period $ 8,202 $ 78 $ 7,909 $ 49 Current period change for expected credit losses 24 67 Write-offs of uncollectible premiums receivable 8 22 Balance, end of period $ 8,459 $ 94 $ 8,459 $ 94 At and For the Three Months Ended June 30, 2020 At and For the Six Months Ended June 30, 2020 (in millions) Reinsurance Recoverables, Net of Allowance for Estimated Uncollectible Reinsurance Allowance for Estimated Uncollectible Reinsurance Reinsurance Recoverables, Net of Allowance for Estimated Uncollectible Reinsurance Allowance for Estimated Uncollectible Reinsurance Balance, beginning of period $ 8,152 $ 149 $ 8,235 $ 92 Cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2020 — 53 Current period change for estimated uncollectible reinsurance 7 11 Write-offs of uncollectible reinsurance recoverables — — Balance, end of period $ 8,093 $ 156 $ 8,093 156 At and For the Three Months Ended June 30, 2020 At and For the Six Months Ended June 30, 2020 (in millions) Contractholder Receivables, Net of Allowance for Expected Credit Losses Allowance for Expected Credit Losses Contractholder Receivables, Net of Allowance for Expected Credit Losses Allowance for Expected Credit Losses Balance, beginning of period $ 4,634 $ 20 $ 4,599 $ 20 Current period change for expected credit losses 2 2 Write-offs of uncollectible contractholder receivables — — Balance, end of period $ 4,314 $ 22 $ 4,314 $ 22
2017
2016(in millions) June 30,
2020December 31,
2019Business Insurance $ 2,573 $ 2,601 Bond & Specialty Insurance 550 550 Personal Insurance 776 784 Other 26 26 Total $ 3,925 $ 3,961 (1) At September 30, 2017, goodwill related to the acquisition of Simply Business was $348 million. The total amount of goodwill expected to be deductible for tax purposes related to Simply Business is $466 million, which includes certain acquisition costs and intangible assets.THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued5.GOODWILL AND OTHER INTANGIBLE ASSETS, Continued
Carrying
Amount
Amortization
Carrying
Amount
Amortization(at June 30, 2020, in millions) Gross
Carrying
AmountAccumulated
AmortizationNet Subject to amortization Customer-related $ 95 $ 25 $ 70 204 181 23 Total subject to amortization 299 206 93 Not subject to amortization 226 — 226 Total $ 525 $ 206 $ 319 (at December 31, 2019, in millions) Gross
Carrying
AmountAccumulated
AmortizationNet Subject to amortization Customer-related $ 99 $ 21 $ 78 205 179 26 Total subject to amortization 304 200 104 Not subject to amortization 226 — 226 Total $ 530 $ 200 $ 330 IntangibleContract-based intangible assets subject to amortization are comprised of fair value adjustments on claims and claim adjustment expense reserves, reinsurance recoverables and other contractcontract-related intangible assets. Fair value adjustments recorded in connection with insurance acquisitions were based on management’s estimate of nominal claims and customer-related intangibles.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 assetassets run off at different rates, and, as such, the amount recognized in income may be a net benefit in some periods and a net expense in other periods.$4$3 million and $3$4 million for the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively, and $9$7 million and $8 million for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively. Intangible assetAmortization expense for all intangible assets subject to amortization expense is estimated to be $4$7 million for the remainder of 2017, $15 million in 2018, $14 million in 2019,2020, $13 million in 2020 and2021, $12 million in 2021.6.2022, $12 million in 2023 and $11 million in 2024. Amortization expense for intangible assets arising from insurance contracts acquired in a business combination is estimated to be $2 million for the remainder of 2020, $4 million in 2021, $3 million in 2022, $3 million in 2023 and $2 million in 2024.
2017
2016(in millions) June 30,
2020December 31,
2019Property-casualty $ 53,097 $ 51,836 Accident and health 12 13 Total $ 53,109 $ 51,849 expenses for the nine months ended September 30, 2017 and 2016:THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued6.INSURANCE CLAIM RESERVES, ContinuedSix Months Ended June 30, (in millions) 2020 2019 Claims and claim adjustment expense reserves at beginning of year $ 51,836 $ 50,653 Less reinsurance recoverables on unpaid losses 8,035 8,182 Cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2020 53 — Net reserves at beginning of year 43,854 42,471 Estimated claims and claim adjustment expenses for claims arising in the current year 9,826 9,329 Estimated increase (decrease) in claims and claim adjustment expenses for claims arising in prior years 16 (118) Total increases 9,842 9,211 Claims and claim adjustment expense payments for claims arising in: Current year 2,664 2,810 Prior years 5,674 5,897 Total payments 8,338 8,707 Unrealized foreign exchange (gain) loss (137) 62 Net reserves at end of period 45,221 43,037 Plus reinsurance recoverables on unpaid losses 7,876 8,022 Claims and claim adjustment expense reserves at end of period $ 53,097 $ 51,059 SeptemberJune 30, 20172020 increased by $1.80$1.26 billion from December 31, 2016, 2019, primarily reflecting the impacts of (i) catastrophe losses in the third quarterfirst six months of 2017 and2020, (ii) higher volumes of insured exposures and loss cost trends for the current accident year partially offset byand (iii) reduced claim settlement activity largely due to the impacts of (iii) paymentsdisruptions in the judicial system related to operations in runoff and (iv) net favorable prior year reserve development.SeptemberJune 30, 2017 increased2020 decreased by $155$159 million from December 31, 2016,2019, primarily reflecting cash collections in the impactsfirst six months of catastrophe losses2020 and the asbestos reserve$53 million increase in the allowance for estimated uncollectible reinsurance from the cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2020.2017, partially offset by cash collections 2020. The Company expects to recognize in the first nine monthsthird quarter of 2017, including2020 a subrogation benefit related to these claims of approximately $400 million pre-tax, net of expenses and amounts that would inure to the settlementbenefit of certain disputes as discussed in more detail in note 13.ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, estimated claims and claim adjustment expenses incurred included $197$(16) million and $430$118 million, respectively, of net favorable (unfavorable) development for claims arising in prior years, including $299$29 million and $507$174 million, respectively, of net favorable prior year reserve development, impacting the Company’s results of operations and $38$24 million and $25 million, respectively, of accretion of discount in each period.thirdsecond quarter of 20172019 totaled $9$71 million, primarily driven byby:segment’ssegment's domestic operations in (i) the workers’ compensation product line for multiple accident yearsyears.(ii) the general liability product line (excluding the increase to asbestos reserves) for both primary and excess coverages for accident years 2007 and prior as well as accident year 2016, largely offset by (iii) a $225 million increase to asbestos reserves and (iv) the impact ofenvironmental) - higher than expected loss experience in the commercial automobile product linesegment's domestic operations for primary and excess coverages for multiple accident years 2013 through 2016. Net favorable prior year reserve developmentyears;third quarter of 2016 totaled $4 million, primarily driven by bettersegment's domestic general liability product line;segment’ssegment's domestic operations in (i) the general liability product line (excluding the increase to asbestos reserves) for both primaryrecent accident years; and excess coverages for accident years 2006 and prior as well as accident years 2014 and 2015, (ii) the workers’ compensation product line for accident years 2006 and prior as well as accident year 2015 and (iii) the commercial auto product line for accident years 2011 and prior, largely offset by (iv) a $225 million increase to asbestos reserves.THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued6.INSURANCE CLAIM RESERVES, Continuedninesix months of 20172020 totaled $195$5 million, primarily driven by net favorable prior year reserve development in the segment’s domestic operations due toby:(i) the workers’ compensation product linesegment's domestic operations for multiple accident years, (ii)years; andgeneralsegment's domestic operations for multiple accident years.product line (excluding an increase to asbestos and environmental reserves)environmental) - higher than expected loss experience in the segment's domestic operations for both primary and excess coverages for multiple accident yearsyears; and (iii) the commercialproduct line for liability coverages for multiple accident years, partially offset by (iv) a $225 million increase to asbestos reserves, (v) a $65 million increase to environmental reserves and (vi) the impact of- higher than expected loss experience in the commercial automobile product line for accident years 2013 through 2016. The net favorable prior year reserve development in the segment’ssegment's domestic operations was partially offset by net unfavorable prior year reserve development in the segment’s international operations in Europe due to the UK Ministry of Justice’s “Ogden” discount rate adjustment applied to lump sum bodily injury payouts. for recent accident years.ninesix months of 20162019 totaled $203$50 million, primarily driven by net favorable prior year reserve development in the segment’s domestic operations due toby:(i) the workers’ compensation product linesegment's domestic operations for multiple accident years 2006years; and prior as well asyear 2015, (ii) the generalyears.product line (excluding an increase to asbestos and environmental reserves)environmental) - higher than expected loss experience in the segment's domestic operations for both primary and excess coverages for multiple accident years, and (iii)including the commercial automobile product lineimpact of the enactment of legislation by a number of states, which extended the statute of limitations for accident years 2011 and prior, partially offset by (iv) a $225childhood sexual molestation claims;increase to asbestos reserves and (v) an $82 million increase to environmental reserves, as well as net favorable prior year reserve developmentprimarily in the segment’s international operations in Europe and Canada.Bond & Specialty Insurance. Net favorable prior year reserve development in the third quarter of 2017 totaled $6 million. Net favorable prior year reserve development in the third quarter of 2016 totaled $46 million, primarily driven by bettersegment's domestic general liability product line;segment’ssegment's domestic operations in the fidelityfor recent accident years; and surety product line for accident years 2009 through 2015. Net favorable prior year reserve development in first nine months of 2017 totaled $98 million, primarily driven by bettersegment’ssegment's domestic operations in the general liability product line for recent accident years 2012, 2014 and 2015. Net favorable prior year reserve development in the first nine months of 2016 totaled $271 million, primarily driven by better than expected loss experience in the segment’s domestic operations in (i) the fidelity and surety product line for accident years 2009 through 2015 and (ii) the general liability product line for accident years 2007 through 2011.Personalyears.There was no net prior year reserve development in the third quarter of 2017. Net unfavorable prior year reserve development in each of the thirdsecond quarter and first six months of 2016 totaled $112020 was $33 million, primarily driven by higher than expected loss experience in the segment’ssegment's domestic operations in the Homeowners and Othergeneral liability product line for liability coverages forrecent accident years 2013 and 2014.years. Net favorable prior year reserve development in the second quarter and first ninesix months of 20172019 totaled $6 million. Net favorable prior year reserve development in the first nine months of 2016 totaled $33$39 million and $42 million, respectively, primarily driven by better than expected loss experience in the segment’s internationalsegment's domestic operations in Canada.Subsequent EventThe Company expects to incur significant catastrophe lossesthe general liability product line for multiple accident years.fourthsecond quarter and first six months of 2017 resulting from wildfires that began2020 totaled $35 million and $57 million, respectively, primarily driven by better than expected loss experience in early Octoberthe segment's domestic operations in California. The fires are ongoingboth the automobile and efforts to containhomeowners and other product lines for multiple accident years. Net favorable prior year reserve development in the fires are continuing;second quarter and first six months of 2019 totaled $13 million and $82 million, respectively. Net favorable prior year reserve development in the Company does not currently have an estimatefirst six months of its ultimate losses related to2019 was primarily driven by better than expected loss experience in the fires.7.table presentstables present the changes in the Company’s accumulated other comprehensive income (loss) (AOCI) for the ninethree months and six months ended SeptemberJune 30, 2017.
Investment Securities
Losses Recognized in
the Consolidated
Statement of Income
Recognized in the
Consolidated
Statement of Income
Obligations
Recognized in
Shareholders’ Equity
Foreign Currency
Translation
Other
Comprehensive
Income (Loss) Changes in Net Unrealized Gains on Investment Securities (in millions) Having No Credit
Losses Recognized in
the Consolidated
Statement of Income (Loss)Having Credit
Losses Recognized
in the Consolidated
Statement of
Income (Loss)Net Benefit Plan Assets and
Obligations
Recognized in
Shareholders’
EquityNet Unrealized
Foreign Currency
TranslationTotal Accumulated
Other
Comprehensive
Income (Loss)Balance, March 31, 2020 $ 1,600 $ 185 $ (828) $ (1,006) $ (49) Other comprehensive income (loss) (OCI) before reclassifications, net of tax 1,867 2 — 53 1,922 Amounts reclassified from AOCI, net of tax (8) — 17 — 9 Net OCI, current period 1,859 2 17 53 1,931 Balance, June 30, 2020 $ 3,459 $ 187 $ (811) $ (953) $ 1,882 Changes in Net Unrealized Gains on Investment Securities (in millions) Having No Credit Losses Recognized in the Consolidated Statement of Income (Loss) Having Credit
Losses Recognized
in the Consolidated
Statement of
Income (Loss)Net Benefit Plan Assets and Obligations Recognized in Shareholders’ Equity Net Unrealized Foreign Currency Translation Total Accumulated Other Comprehensive Income Balance, December 31, 2019 $ 2,057 $ 189 $ (846) $ (760) $ 640 Other comprehensive income (loss) (OCI) before reclassifications, net of tax 1,408 (2) 1 (193) 1,214 Amounts reclassified from AOCI, net of tax (6) — 34 — 28 Net OCI, current period 1,402 (2) 35 (193) 1,242 Balance, June 30, 2020 $ 3,459 $ 187 $ (811) $ (953) $ 1,882 (loss) and the related income tax expense (benefit).
September 30,
September 30, Three Months Ended
June 30,Six Months Ended
June 30,(in millions) 2020 2019 2020 2019 Changes in net unrealized gains on investment securities: Having no credit losses recognized in the consolidated statement of income (loss) $ 2,359 $ 1,108 $ 1,784 $ 2,524 Income tax expense 500 234 382 534 Net of taxes 1,859 874 1,402 1,990 Having credit losses recognized in the consolidated statement of income (loss) 3 (4) (3) 1 Income tax expense (benefit) 1 (1) (1) — Net of taxes 2 (3) (2) 1 Net changes in benefit plan assets and obligations 21 14 44 26 Income tax expense 4 3 9 5 Net of taxes 17 11 35 21 Net changes in unrealized foreign currency translation 52 5 (216) 55 Income tax expense (benefit) (1) (1) (23) 2 Net of taxes 53 6 (193) 53 Total other comprehensive income 2,435 1,123 1,609 2,606 Total income tax expense 504 235 367 541 Total other comprehensive income, net of taxes $ 1,931 $ 888 $ 1,242 $ 2,065 7.income.
September 30,
September 30,Three Months Ended
June 30,Six Months Ended
June 30,(in millions) 2020 2019 2020 2019 Reclassification adjustments related to unrealized gains on investment securities: $ (10) $ (13) $ (8) $ (29) (2) (3) (2) (6) Net of taxes (8) (10) (6) (23) — — — — — — — — Net of taxes — — — — Reclassification adjustment related to benefit plan assets and obligations: 9 6 18 11 13 7 25 15 Total 22 13 43 26 5 2 9 5 Net of taxes 17 11 34 21 — — — — — — — — Net of taxes — — — — Total reclassifications 12 — 35 (3) Total income tax (expense) benefit 3 (1) 7 (1) Total reclassifications, net of taxes $ 9 $ 1 $ 28 $ (2) income.income.income.THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued8.income (loss).May 22, 2017,April 27, 2020, the Company issued $700$500 million aggregate principal amount of 4.00%2.55% senior notes that will mature on May 30, 2047.April 27, 2050. The net proceeds of the issuance, after the deduction of the underwriting discount and expenses payable by the Company, totaled approximately $689$490 million. Interest on the senior notes is payable semi-annually in arrears on May 30April 27 and November 30, commencing on November 30, 2017.October 27. Prior to November 30, 2046,October 27, 2049, the senior notes may be redeemed, in whole or in part, at the Company’s option, at any time or from time to time, at a redemption price equal to the greater of (a) 100% of the principal amount of any senior notes to be redeemed or (b) the sum of the present values of the remaining scheduled payments of principal and interest to November 30, 2046but excluding October 27, 2049 on any senior notes to be redeemed (exclusive of interest accrued to the date of redemption) discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the then current Treasury rate (as defined in the senior notes), plus 1525 basis points. On or after November 30, 2046,October 27, 2049, the senior notes may be redeemed, in whole or in part, at the Company’s option, at any time or from time to time, at a redemption price equal to 100% of the principal amount of any senior notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.Debt Redemption. On June 2, 2017, the Company redeemed the remaining $107 million aggregate principal amount of its 6.25% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067 at a price per debenture of 100% of the principal amount thereof, plus accrued and unpaid interest to the redemption date.Commercial Paper. The Company had $0 and $100 million of commercial paper outstanding at September 30, 2017 and December 31, 2016, respectively.9.and nineended June 30, 2020, the Company did not repurchase any common shares under its share repurchase authorization. For the six months ended SeptemberJune 30, 2017,2020, the Company repurchased 2.63.5 million and 8.3 million shares respectively, under its share repurchase authorization, for a total cost of $328 million and $1.03 billion, respectively.$425 million. The average cost per share repurchased was $128.11 and $124.12, respectively.$123.09. In addition, the Company acquired 964368 shares and 0.50.3 million shares for a total cost of $0.1 millionapproximately $33,000 and $61$46 million during the three months and ninesix months ended SeptemberJune 30, 2017,2020, respectively, that were not part of the publicly announced share repurchase authorization. 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. In April 2017, the Board of Directors approved a share repurchase authorization that added an additional $5.0 billion of repurchase capacity. At SeptemberJune 30, 2017,2020, the Company had $4.91$1.36 billion of capacity remaining under its share repurchase authorization.THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued10.net income (loss) and share data used in the basic and diluted earnings (loss) per share computations for the periods presented:
September 30,
September 30,11. Three Months Ended
June 30,Six Months Ended
June 30,(in millions, except per share amounts) 2020 2019 2020 2019 Basic and Diluted Net income (loss), as reported $ (40) $ 557 $ 560 $ 1,353 Participating share-based awards — allocated income (1) (4) (3) (10) Net income (loss) available to common shareholders — basic and diluted $ (41) $ 553 $ 557 $ 1,343 Common Shares Basic Weighted average shares outstanding 251.6 261.3 253.6 262.1 Diluted Weighted average shares outstanding 251.6 261.3 253.6 262.1 Weighted average effects of dilutive securities — stock options and performance shares — 2.4 1.1 2.1 Total 251.6 263.7 254.7 264.2 Net Income (Loss) per Common Share Basic $ (0.16) $ 2.11 $ 2.19 $ 5.12 Diluted $ (0.16) $ 2.10 $ 2.19 $ 5.08 SeptemberJune 30, 2017:2020: Stock Options Number Weighted
Average
Exercise
PriceWeighted
Average
Contractual
Life
RemainingAggregate
Intrinsic
Value
($ in millions)7,488,449 $ 114.26 5.8 years $ 56 Exercisable at end of period 5,167,407 $ 106.08 4.5 years $ 56
Average
Exercise
Price
Average
Contractual
Life
Remaining
Intrinsic
Value
($ in millions)THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued11.SHARE-BASED INCENTIVE COMPENSATION, Continued$31$34 million and $42$35 million for the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively, and $104 million and $124$80 million for each of the ninesix months ended SeptemberJune 30, 20172020 and 2016, respectively.2019. The related tax benefits recognized in the consolidated statement of income (loss) were $10$6 million for each of the three months ended June 30, 2020 and 2019, and $14 million for each of the threesix months ended SeptemberJune 30, 20172020 and 2016, respectively, and $34 million and $42 million for the nine months ended September 30, 2017 and 2016, respectively.SeptemberJune 30, 20172020 was $172$198 million, which is expected to be recognized over a weighted-average period of 1.92.0 years.12.SeptemberJune 30, 20172020 and 2016. Pension Plans Postretirement Benefit Plans (for the three months ended June 30, in millions) 2020 2019 2020 2019 Net Periodic Benefit Cost: Service cost $ 33 $ 29 $ — $ — Non-service cost (benefit): Interest cost on benefit obligation $ 28 $ 35 $ 1 $ 2 Expected return on plan assets (68) (68) — — Amortization of unrecognized: Prior service benefit — (1) — (1) Net actuarial (gain) loss 23 14 (1) — Total non-service cost (benefit) (17) (20) — 1 Net periodic benefit cost $ 16 $ 9 $ — $ 1 costscost and non-service benefit costscost (benefit) are presented in the consolidated statement of income (loss) for the three months ended SeptemberJune 30, 20172020 and 2016.12. Pension Plans Postretirement Benefit Plans (for the three months ended June 30, in millions) 2020 2019 2020 2019 Service Cost: Claims and claim adjustment expenses $ 14 $ 12 $ — $ — General and administrative expenses 19 17 — — Total service cost 33 29 — — Non-Service Cost (Benefit): Claims and claim adjustment expenses (7) (8) — 1 General and administrative expenses (10) (12) — — Total non-service cost (benefit) (17) (20) — 1 Net periodic benefit cost $ 16 $ 9 $ — $ 1 ninesix months ended SeptemberJune 30, 20172020 and 2016. Pension Plans Postretirement Benefit Plans (for the six months ended June 30, in millions) 2020 2019 2020 2019 Net Periodic Benefit Cost: Service cost $ 66 $ 59 $ — $ — Non-service cost (benefit): Interest cost on benefit obligation 57 70 2 4 Expected return on plan assets (137) (137) — — Amortization of unrecognized: Prior service benefit — (1) (2) (2) Net actuarial (gain) loss 46 28 (1) — Total non-service cost (benefit) (34) (40) (1) 2 Net periodic benefit cost (benefit) $ 32 $ 19 $ (1) $ 2 ninesix months ended SeptemberJune 30, 20172020 and 2016.2019. Pension Plans Postretirement Benefit Plans (for the six months ended June 30, in millions) 2020 2019 2020 2019 Service Cost: Claims and claim adjustment expenses $ 28 $ 24 $ — $ — General and administrative expenses 38 35 — — Total service cost 66 59 — — Non-Service Cost (Benefit): Claims and claim adjustment expenses (14) (16) — 1 General and administrative expenses (20) (24) (1) 1 Total non-service cost (benefit) (34) (40) (1) 2 Net periodic benefit cost (benefit) $ 32 $ 19 $ (1) $ 2 Three Months Ended
June 30,Six Months Ended
June 30,(in millions) 2020 2019 2020 2019 Lease cost Operating leases $ 24 $ 23 $ 48 $ 45 1 3 1 7 Lease expense 25 26 49 52 — — — — Net lease cost $ 25 $ 26 $ 49 $ 52 Other information on operating leases Cash payments to settle a lease liability reported in cash flows $ 28 $ 26 $ 55 $ 50 Right-of-use assets obtained in exchange for new lease liabilities $ 4 $ 28 $ 18 $ 36 Weighted average discount rate 2.94 % 3.05 % 2.94 % 3.05 % Weighted average remaining lease term 4.9 years 5.2 years 4.9 years 5.2 years 13.(in millions) Real Estate Lease Liability Remainder of 2020 $ 53 2021 97 2022 74 2023 54 2024 38 Thereafter 57 Total undiscounted lease payments 373 Less: present value adjustment 27 Operating lease liability $ 346 aggressivecomprehensive 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 the future loss development offor claims and litigation relating to asbestos and environmental claims. Any such development willcould be affected by future court decisions and interpretations, as well asTHE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued13.CONTINGENCIES, COMMITMENTS AND GUARANTEES, Continuedincreaseschanges 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.Gain ContingencyOn August 17, 2010, in a reinsurance dispute in New York state court captioned United States Fidelity & Guaranty Company v. American Re-Insurance Company, et al., the trial court granted summary judgment for United States Fidelity and Guaranty Company (USF&G), a subsidiary of the Company, and denied summary judgment for the reinsurers. The Court of Appeals largely affirmed the entry of summary judgment, but remanded two discrete issues for trial.On November 7, 2016, the Company agreed to a settlement with one of the three defendants then remaining in this dispute. The Company received payment under the settlement in the fourth quarter of 2016 and, as a result, recognized a $126 million pre-tax ($82 million after-tax) gain in the fourth quarter, which was included in “other revenues” in the consolidated statement of income for the year ended December 31, 2016. In connection with that settlement, the reinsurance recoverable balance related to this case was reduced from approximately $238 million to approximately $31 million in the Company’s consolidated balance sheet. At March 31, 2017, the claim related to the remaining defendants totaled $71 million, comprising the $31 million of reinsurance recoverable plus interest amounting to $40 million as of that date. The interest was treated for accounting purposes as a gain contingency in accordance with FASB Topic 450, Contingencies, and accordingly was not recognized in the Company’s consolidated financial statements.On May 1, 2017, the Company agreed to a settlement of this dispute with the two remaining defendants, along with the settlement of several other disputes with these same parties. As a result of the settlement of all of these matters, the Company recorded an immaterial gain in “other revenues” in its consolidated statement of income for the three months ended June 30, 2017, and the reinsurance recoverable of $31 million in the Company’s balance sheet was fully satisfied.$1.55$1.63 billion and $1.60$1.66 billion at SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively.$358$351 million at SeptemberJune 30, 2017, of which $2 million was recognized on the balance sheet at that date.The maximum amount of the Company’s obligation for guarantees of certain investments and third-party loans related to certain investments that are quantifiable was $45 million at September 30, 2017, approximately $23 million of which is indemnified by a third party. 2020.SeptemberJune 30, 2017,2020, all of which is indemnified by a third party. For more information regarding Company guarantees, see note 16 of notes to the consolidated financial statements in the Company’s 20162019 Annual Report as updated by the Company’s Form 8-K filed on June 20, 2017.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued14.CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESThe following consolidating financial statements of the Company have been prepared pursuant to Rule 3-10 of Regulation S-X. These consolidating financial statements have been prepared from the Company’s financial information on the same basis of accounting as the consolidated financial statements. The Travelers Companies, Inc. (excluding its subsidiaries, TRV) has fully and unconditionally guaranteed certain debt obligations of Travelers Property Casualty Corp. (TPC) and Travelers Insurance Group Holdings, Inc. (TIGHI), which totaled $700 million at September 30, 2017.Prior to the merger of TPC and The St. Paul Companies, Inc. in 2004, TPC fully and unconditionally guaranteed the payment of all principal, premiums, if any, and interest on certain debt obligations of its wholly-owned subsidiary, TIGHI. Concurrent with the merger, TRV fully and unconditionally assumed such guarantee obligations of TPC. TPC is deemed to have no assets or operations independent of TIGHI. Consolidating financial information for TIGHI has not been presented herein because such financial information would be substantially the same as the financial information provided for TPC.CONSOLIDATING STATEMENT OF INCOME (Unaudited)For the three months ended September 30, 2017
Subsidiaries(1) Total other-than-temporary impairment (OTTI) for the three months ended September 30, 2017, and the amounts comprising total OTTI that were recognized in net realized investment gains (losses) and in other comprehensive income (OCI) were as follows:
SubsidiariesTHE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued14.CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, ContinuedCONSOLIDATING STATEMENT OF INCOME (Unaudited)For the three months ended September 30, 2016
Subsidiaries(1) Total other-than-temporary impairment (OTTI) for the three months ended September 30, 2016, and the amounts comprising total OTTI that were recognized in net realized investment gains and in other comprehensive income (OCI) were as follows:
SubsidiariesTHE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued14.CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, ContinuedCONSOLIDATING STATEMENT OF INCOME (Unaudited)For the nine months ended September 30, 2017
Subsidiaries(1) Total other-than-temporary impairment (OTTI) for the nine months ended September 30, 2017, and the amounts comprising total OTTI that were recognized in net realized investment gains (losses) and in other comprehensive income (OCI) were as follows:
SubsidiariesTHE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued14.CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, ContinuedCONSOLIDATING STATEMENT OF INCOME (Unaudited)For the nine months ended September 30, 2016
Subsidiaries(1) Total other-than-temporary impairment (OTTI) for the nine months ended September 30, 2016, and the amounts comprising total OTTI that were recognized in net realized investment gains (losses) and in other comprehensive income (OCI) were as follows:
SubsidiariesTHE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued14.CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, ContinuedCONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (Unaudited)For the three months ended September 30, 2017
SubsidiariesTHE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued14.CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, ContinuedCONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (Unaudited)For the three months ended September 30, 2016
SubsidiariesTHE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued14.CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, ContinuedCONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (Unaudited)For the nine months ended September 30, 2017
SubsidiariesTHE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued14.CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, ContinuedCONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (Unaudited)For the nine months ended September 30, 2016
SubsidiariesTHE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued14.CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, ContinuedCONSOLIDATING BALANCE SHEET (Unaudited)At September 30, 2017
SubsidiariesTHE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued14.CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, ContinuedCONSOLIDATING BALANCE SHEET (Unaudited)At December 31, 2016
SubsidiariesTHE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued14.CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, ContinuedCONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)For the nine months ended September 30, 2017
SubsidiariesTHE TRAVELERS COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued14.CONSOLIDATING FINANCIAL STATEMENTS OF THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES, ContinuedCONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)For the nine months ended September 30, 2016
SubsidiariesTHE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES2017 Third·incomeloss of $293$(40) million, or $1.06$(0.16) per share basic and $1.05 per share diluted·$6.52$6.96 billion·$700$854 million ($455673 million after-tax)·$15$2 million ($1 million after-tax)· Combined ratio of 103.2%· Net investment income of $588 million ($457 million after-tax)·$1.64$1.66 billion2017 Third·$73.09$80.60 billion; fixed maturities and short-term securities comprised 93%94% of total investments·$104.31$113.34 billion·$6.92$7.05 billion, resulting in a debt-to-total capital ratio of 22.6% (23.3%20.7% (23.2% excluding net unrealized investment gains, net of tax)· Repurchased 2.6 million common shares for total cost of $328 million and paid $200·$23.74$26.94 billion·$1.55$4.63 billion ($1.013.65 billion after-tax)·$86.73·$106.42$1.96$2.02 billionRealignment of Reportable Business SegmentsEffective April 1, 2017, and as reported in the Company’s Form 10-Q for the quarter ended June 30, 2017, the Company’s results are reported in the following three business segments — Business Insurance, Bond & Specialty Insurance and Personal Insurance, reflecting a change in the manner in which the Company’s businesses were being managed as of that date, as well as the aggregation of products and services based on the type of customer, how the business is marketed and the manner in which risks are underwritten. While the segmentation of the Company’s domestic businesses was unchanged, the Company’s international businesses, which were previously managed and reported in total within the Business and International Insurance segment, were disaggregated by product type among the three newly aligned reportable business segments. All prior periods presented have been reclassified to conform to this presentation.In connection with these changes, the Company revised the names and descriptions of certain businesses comprising the Company’s segments and has reflected other related changes. The following discussion of segment results is based on the realigned reportable business segment structure effective April 1, 2017.
September 30,
September 30, Three Months Ended
June 30,Six Months Ended
June 30,(in millions, except ratio and per share amounts) 2020 2019 2020 2019 Revenues Premiums $ 6,955 $ 6,988 $ 14,184 $ 13,843 Net investment income 268 648 879 1,230 Fee income 114 116 222 225 Net realized investment gains (losses) 13 25 (85) 78 Other revenues 51 57 109 129 Total revenues 7,401 7,834 15,309 15,505 Claims and expenses Claims and claim adjustment expenses 5,107 4,821 9,896 9,263 Amortization of deferred acquisition costs 1,173 1,134 2,351 2,251 General and administrative expenses 1,121 1,125 2,258 2,182 Interest expense 85 89 169 177 Total claims and expenses 7,486 7,169 14,674 13,873 Income (loss) before income taxes (85) 665 635 1,632 Income tax expense (benefit) (45) 108 75 279 Net income (loss) $ (40) $ 557 $ 560 $ 1,353 Net income (loss) per share Basic $ (0.16) $ 2.11 $ 2.19 $ 5.12 Diluted $ (0.16) $ 2.10 $ 2.19 $ 5.08 Combined ratio Loss and loss adjustment expense ratio 72.7 % 68.2 % 69.0 % 66.2 % Underwriting expense ratio 31.0 30.2 30.5 29.9 Combined ratio 103.7 % 98.4 % 99.5 % 96.1 % $1.05$2.19 in the third quarterfirst six months of 20172020 decreased by 57% from diluted net income per share of $2.45$5.08 in the same period of 2016.2019. Net income of $293$560 million in the third quarterfirst six months of 20172020 decreased by 59% from net income of $716 million$1.35 billion in the same period of 2016.2019. The lower rate of decrease in diluted net income per share reflected the impact of share repurchases in recent periods. The decrease in net income before income taxes primarily reflected the pre-tax impacts of (i) significantly higher catastrophe losses, (ii) lower underwriting margins excluding catastrophenet investment income, (iii) net realized investment losses compared to net realized investment gains in the same period of 2019 and prior year reserve development (“underlying underwriting margins”) and (iii)(iv) lower net favorable prior year reserve development, partially offset by (iv)(v) higher net realized investment gains. Catastrophe losses in the third quarters of 2017 and 2016 were $700 million and $89 million, respectively. Net favorable prior year reserve development in the third quarters of 2017 and 2016 was $15 million and $39 million, respectively. The lower underlying underwriting margins primarily resulted from the impacts of (i) a high level of non-catastrophe fire-related losses and (ii) loss cost trends that modestly exceeded earned pricing, partially offset by (iii) increased business volumes. Partially offsetting this net pre-tax decrease in income was a related decrease in income tax expense.Diluted net income per share of $5.34 in the first nine months of 2017 decreased by 24% from diluted net income per share of $7.00 in the same period of 2016. Net income of $1.51 billion in the first nine months of 2017 decreased by 27% from netincome of $2.07 billion in the same period of 2016. The lower rate of decrease in diluted net income per share reflected the impact of share repurchases in recent periods. The decrease in net income primarily reflected the pre-tax impacts of (i) significantly higher catastrophe losses, (ii) lower net favorable prior year reserve development and (iii) lower underlying underwriting margins, partially offset by (iv) higher net investment income and (v) higher net realized investment gains.margins. Catastrophe losses in the first ninesix months of 20172020 and 20162019 were $1.45$1.19 billion and $740$560 million, respectively. Net favorable prior year reserve development in the first ninesix months of 20172020 and 20162019 was $299$29 million and $507$174 million, respectively. The lowerhigher underlying underwriting margins primarily resulted from the impacts of (i) a high level of non-catastrophe fire-related losses, (ii) the timing of higher loss estimates in personal automobile bodily injury liability coverages that were consistent with the higher loss trends recognized in the latter partfirst six months of 2016 and (iii) loss cost trends that modestly exceeded earned pricing,2020 were driven by Personal Insurance, partially offset by (iv) increased business volumes. Partially offsetting this net pre-tax decrease in income was a related decrease in income tax expense.Business Insurance and Bond & Specialty Insurance. Income tax expense in the first ninesix months of 20172020 was alsolower than in the same period of 2019, primarily reflecting the impact of the decrease in income before income taxes.$39 millionCOVID-19 and related economic conditions.resolutionimproved profitability referred to above, partially offset by lower travel-related expenses.prior year tax matters2020, the Company also experienced the following impacts of COVID-19 and related economic conditions:2017.ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, 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.thirdsecond quarter of 20172020 were $6.52$6.96 billion, $314comparable with the same period of 2019. Earned premiums in the first six months of 2020 were $14.18 billion, $341 million or 5%2% higher than in the same period of 2016. Earned premiums in the first nine months of 2017 were $19.06 billion, $800 million or 4% higher than in the same period of 2016.2019. In Business Insurance, earned premiums in both the thirdsecond quarter andof 2020 decreased by 1% from the same period of 2019. Earned premiums in the first ninesix months of 20172020 increased by 2%1% over the same period of 2019. Earned premiums in Business Insurance in both periods of 2016.2020 were negatively impacted by reduced exposures and reductions in the Company's estimate of ultimate audit premiums receivable, in each case reflecting the impact of COVID-19 and related economic conditions, including a decrease in new business levels. In Bond & Specialty Insurance, earned premiums in each of the thirdsecond quarter and first ninesix months of 2017 increased by 3% and 2%, respectively, over the same periods of 2016. In Personal Insurance, earned premiums in both the third quarter and first nine months of 20172020 increased by 10% over the same periods of 2016.2019. Earned premiums in Bond & Specialty Insurance in both periods of 2020 were not materially impacted by COVID-19 and related economic conditions. In Personal Insurance, earned premiums in the second quarter of 2020 decreased by 2% from the same period of 2019, and earned premiums in the first six months of 2020 increased by 3% over the same period of 2019. Earned premiums in Personal Insurance in both periods of 2020 were reduced by premium refunds provided to personal automobile customers in response to COVID-19 and related economic conditions. Factors contributing to the changes in earned premiums in each segment are discussed in more detail in the segment discussions that follow.
September 30,
September 30, Three Months Ended
June 30,Six Months Ended
June 30,(dollars in millions) 2020 2019 2020 2019 $ 76,635 $ 74,370 $ 76,508 $ 74,197 Pre-tax net investment income 268 648 879 1,230 After-tax net investment income 251 548 770 1,044 1.4 % 3.5 % 2.3 % 3.3 % 1.3 % 2.9 % 2.0 % 2.8 % thirdsecond quarter of 20172020 was $588$268 million, $6$380 million or 1% higher59% lower than in the same period of 2016.2019. Net investment income in the first ninesix months of 20172020 was $1.80 billion, $121$879 million, $351 million or 7% higher29% lower than in the same period of 2016.2019. Net investment income from fixed maturity investments in the thirdsecond quarter and first ninesix months of 20172020 was $469$498 million and $1.42$1.01 billion, respectively, $21each $16 million and $73 million lower respectively, than in the same periods of 2016.2019. The decreases primarily resulted from lower long-term reinvestmentinterest rates, available in the market, partially offset by the impact of a slightly higher average level of fixed maturity investments. Net investment income from short-term securities in the thirdsecond quarter and first ninesix months of 20172020 was $19$13 million and $43$35 million, respectively, $12a decline of $14 million and $23$20 million, higher,respectively, as compared to the same periods of 2019. The decreases in both periods of 2020 primarily resulted from lower short-term interest rates. The Company's remaining investment portfolios had a loss of $(234) million and $(146) million in the second quarter and first six months of 2020, respectively, compared with income of $118 million and $171 million, respectively, in the same periods of 2019. 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, the loss from these investments was related to the disruption in global financial markets during the first quarter of 2020 associated with COVID-19.2016. The increases primarily resulted from higher short-term interest rates and a higher average level of short-term investments. Net investment income generated by non-fixed maturity investments in the third quarter and first nine months of 2017 was $108 million and $363 million, respectively, $13 million and $171 millionhigher, respectively, than in the same periods of 2016, primarily due to higher returns from private equity limited partnerships.Fee Incomebusiness. The $3 millionbusiness and $10 million decreases in fee income in the third quarter and first nine months of 2017, respectively, compared with the same periods of 2016 areis discussed in the Business Insurance segment discussion that follows.gains.
September 30,
September 30,The increasesgains (losses).Three Months Ended
June 30,Six Months Ended
June 30,(in millions) 2020 2019 2020 2019 Credit impairment losses: Fixed maturities $ (6) $ (1) $ (22) $ (2) Other investments (40) — (40) — Net realized investment gains (losses) on equity securities still held 46 6 (33) 45 Other net realized investment gains, including from sales 13 20 10 35 Total $ 13 $ 25 $ (85) $ 78 netinvestments.thirdsecond quarter and first ninesix months of 2017 compared with2020, respectively, were driven by the impact of changes in fair value attributable to the volatility in global financial markets.2016 were2019, primarily driven by net realized gains on the sale of equity securities.Other RevenuesOther revenues in all periods of 2017 and 2016 included installment premium charges. Other revenues in the third quarter of 2017 also included revenues from Simply Business, which was acquired in August 2017. Other revenues in the first nine months of 2017 also included a gain relatedattributable to the settlementimpact of billing relief actions offered to customers as a reinsurance dispute in the second quarterresult of 2017. See “Gain Contingency” in note 13 of notes to the unaudited consolidated financial statements for further discussion. Other revenues in the first nine months of 2016 also included proceeds from the favorable settlement of a claims-related legal matter in the first quarter of 2016.thirdsecond quarter of 20172020 were $4.81$5.11 billion, $950$286 million or 25%6% higher than in the same period of 2016,2019, primarily reflecting the impacts of (i) significantly higher catastrophe losses, (ii) higher volumes of insured exposures, (iii) loss cost trends, (iv) a high level of non-catastrophe fire-related losses and (v)(iii) lower net favorable prior year reserve development.development, (iv) higher loss estimates for management liability coverages in Bond & Specialty Insurance, including the impact of COVID-19 and related economic conditions, (v) the net adverse impact of changes in loss estimates across several product lines in Business Insurance initially recognized in the last two quarters of 2019, and (vi) higher business volumes, partially offset by (vii) lower losses in the automobile product line in Personal Insurance due to a decrease in miles driven attributable to COVID-19 and related economic conditions and (viii) lower non-catastrophe weather-related losses. Catastrophe losses in the thirdsecond quarter of 20172020 primarily resulted from Hurricanes Harvey, Irma and Maria, as well as wind and hailsevere storms in the Southern region of the United States. Catastrophe losses in the third quarter of 2016 primarily resulted from hail storms in the Western regionseveral regions of the United States and floodingcivil unrest. Catastrophe losses in the Southeast regionsecond quarter of 2019 primarily resulted from wind storms in several regions of the United States.ninesix months of 20172020 were $13.13$9.90 billion, $1.80 billion$633 million or 16%7% higher than in the same period of 2016,2019, primarily reflecting the impacts of (i) significantly higher catastrophe losses, (ii) higher volumes of insured exposures, (iii) loss cost trends, (iv)(iii) lower net favorable prior year reserve development, (v) a high level of non-catastrophe fire-related losses and (vi)(iv) the timingnet adverse impact of higherchanges in loss trendsestimates across several product lines in personal automobile bodily injury liability coverages that wereBusiness Insurance initially recognized in the latter partlast two quarters of 2016.2019, (v) higher loss estimates for management liability coverages in Bond & Specialty Insurance, including the impact of COVID-19 and related economic conditions, and (vi) higher business volumes, partially offset by (vii) lower losses in the automobile product line in Personal Insurance due to a decrease in miles driven attributable to COVID-19 and related economic conditions, (viii) lower non-catastrophe weather-related losses and (ix) a lower level of large losses in Business Insurance. Catastrophe losses in the first ninesix months of 20172020 and 20162019 included the thirdsecond quarter events described above, as well as tornado activity in Tennessee and other wind storms and winter storms inwinter, wind and hail storms throughoutregions of the United States in the first halfquarter of both 20172020, and 2016. favorable prior year reserve development during the thirdsecond quarters and first ninesix months of 20172020 and 20162019 are discussed in more detail in note 67 of notes to the unaudited consolidated financial statements.ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, the amount of net unfavorable (favorable) prior year reserve development recognized in the three months and ninesix months ended SeptemberJune 30, 20172020 and 20162019 for significant catastrophes that occurred in 20162019 and 2015,2018, and the estimate of ultimate losses for those catastrophes at SeptemberJune 30, 20172020 and December 31, 2016.2019. For purposes of the table, a significant catastrophe is an event for which the Company estimates itsOperations —Operations— Consolidated Overview” in the Company’s 20162019 Annual Report as updated by the Company’s Current Report on Form 8-K filed on June 20, 2017.Report. Losses Incurred/Unfavorable (Favorable)
Prior Year Reserve Development Three Months Ended
June 30,Six Months Ended
June 30, Estimated Ultimate Losses (in millions, pre-tax and net of reinsurance) 2020 2019 2020 2019 June 30,
2020December 31, 2019 ' 2018 PCS Serial Number: 15 — Winter storm — (4) 1 (4) 141 140 17 — Severe wind and hail storms 1 (1) (1) (3) 104 105 33 — Severe wind and hail storms 1 3 — (2) 119 119 52 — Hurricane Florence (3) (7) (3) (10) 85 88 57 — Hurricane Michael (8) 3 (10) 6 150 160 59 — California wildfire - Camp fire (10) — (4) (2) 332 336 60 — California wildfire - Woolsey fire — 9 — 9 129 129 2019 PCS Serial Number: 33 — Severe wind storms 2 185 7 185 257 250 61 — Severe wind storms and tornadoes 11 n/a 11 n/a 120 109 2020 PCS Serial Number: 16 — Tennessee tornado activity (11) n/a 171 n/a 171 n/a 19 — Severe storms 121 n/a 121 n/a 121 n/a 20 — Severe storms 189 n/a 189 n/a 189 n/a
Prior Year Reserve Development
September 30,
September 30,
reinsurance)
2017
2016thirdsecond quarter of 20172020 was $1.06$1.17 billion, $47$39 million or 5%3% higher than in the same period of 2016.2019. Amortization of deferred acquisition costs in the first ninesix months of 20172020 was $3.09$2.35 billion, $122$100 million or 4% higher than in the same period of 2016.2019. The increases in both periods of 2020 were generally consistent with the increases in earned premiums before the impact of premium refunds referred to above. Amortization of deferred acquisition costs is discussed in more detail in the segment discussions that follow.thirdsecond quarter of 20172020 were $1.05$1.12 billion, $12 million or 1% lower than incomparable with the same period of 2016.2019. General and administrative expenses in the first ninesix months of 20172020 were $3.09$2.26 billion, $20$76 million or 1% lower3% higher than in the same period of 2016.2019. General and administrative expenses are discussed in more detail in the segment discussions that follow.thirdsecond quarter and first ninesix months of 20172020 was $95$85 million and $276$169 million, respectively, compared with $89 million and $273$177 million, respectively, in the same periods of 2016.Income (Benefit)in the third quarter of 2017 was $27$108 million $204 million or 88% lower than in the same period of 2016,2019, primarily reflecting the impact of the $627$750 million decrease in income before income taxes in the thirdsecond quarter of 2017.2020. Income tax expense in the first ninesix months of 20172020 was $365$75 million, $315$204 million or 46%73% lower than in the same period of 2016,2019, primarily reflecting the impact of the $881$997 million decrease in income before income taxes in the first ninesix months of 2017 and the $39 million reduction in income tax expense resulting from the resolution of prior year tax matters in the first quarter of 2017.8%(53%) and 24%16% in the thirdsecond quarters of 20172020 and 2016,2019, respectively. The Company’sCompany's effective tax rate was 20%12% and 25%17% in the first ninesix months of 20172020 and 2016,2019, respectively. The effective tax rates in all periods were lower than the statutory rate of 35%21% in both periods, primarily due to the impact of tax-exempt investment income on the calculation of the Company’s income tax provision. In addition, the effective tax rate in the first nine months of 2017 was reduced by the impact of the resolution of prior year tax matters discussed above.103.2%103.7% in the thirdsecond quarter of 20172020 was 10.35.3 points higher than the combined ratio of 92.9%98.4% in the same period of 2016. The combined ratio of 98.7% in the first nine months of 2017 was 5.9 points higher than the combined ratio of 92.8% in the same period of 2016.72.8%72.7% in the thirdsecond quarter of 20172020 was 11.64.5 points higher than the loss and loss adjustment expense ratio of 61.2%68.2% in the same period of 2016. 2019. The underwriting expense ratio of 31.0% for the second quarter of 2020 was 0.8 points higher than the underwriting expense ratio of 30.2% in the same period of 2019. 10.512.3 points and 1.45.3 points, respectively, of the 2017 and 2016 third quarter loss and loss adjustment expense ratios, respectively.combined ratio. Net favorable prior year reserve development in the third quarterssecond quarter of 2017 and 20162020 had no impact on the combined ratio. Net favorable prior reserve development in the second quarter of 2019 provided 0.3 points and 0.61.8 points of benefit respectively, to the loss and loss adjustment expensecombined ratio. The 2017 third quarter loss and loss adjustment expensecombined ratio excluding prior year reserve development and catastrophe losses (“underlying loss and loss adjustment expensecombined ratio”) in the second quarter of 2020 was 2.23.5 points higherlower than the 20162019 ratio on the same basis, primarily reflecting the impacts of (i) a high level of lower non-catastrophe fire-relatedweather-related losses and (ii) earned pricing that exceeded loss cost trends, that modestly exceeded earned pricing..68.0% in69.0% for the first ninesix months of 20172020 was 6.82.8 points higher than the loss and loss adjustment expense ratio of 61.2%66.2% in the same period of 2016. 2019. The underwriting expense ratio of 30.5% for the first six months of 2020 was 0.6 points higher than the underwriting expense ratio of 29.9% in the same period of 2019.7.58.4 points and 4.1 points, respectively, of the 2017 and 2016 nine-month loss and loss adjustment expense ratios, respectively.combined ratio. Net favorable prior year reserve development in the first ninesix months of 20172020 and 20162019 provided 1.60.2 points and 2.81.3 points of benefit, respectively, to the loss and loss adjustment expensecombined ratio. The underlying loss and loss adjustment expensecombined ratio in the first ninesix months of 20172020 was 2.22.0 points higherlower than the 20162019 ratio on the same basis,, primarily reflecting (i) lower non-catastrophe weather-related losses, (ii) earned pricing that exceeded loss cost trends and (iii) a highlower level of non-catastrophe fire-relatedlarge losses, (ii)partially offset by (iv) the tenurenet adverse impact of higher levels of new businesschanges in recent years in the Personal Automobile product line, (iii) the timing of higher loss estimates across several product lines in personal automobile bodily injury liability coverages that were consistent with the higher loss trendsBusiness Insurance initially recognized in the latter partlast two quarters of 2016 and (iv) the2019. The net impact of loss cost trends that modestly exceeded earned pricing.The underwriting expenseCOVID-19 and related economic conditions was modest.of 30.4% for the third quarter of 2017 was 1.3 points lower than the underwriting expense ratio of 31.7%have been impacted by adverse developments in the same period of 2016. In the first nine months of 2017, the underwriting expense ratio of 30.7% was 0.9 points lower than the underwriting expense ratio of 31.6%tort environment, including more aggressive attorney involvement in the same period of 2016. The declines in both periods of 2017 primarily reflected the impacts of (i) higher levels of earned premiums and (ii) lower general and administrative expenses.
September 30,
September 30,
September 30,
September 30, Gross Written Premiums Three Months Ended
June 30,Six Months Ended
June 30,(in millions) 2020 2019 2020 2019 Business Insurance $ 4,127 $ 4,193 $ 8,921 $ 8,923 Bond & Specialty Insurance 770 747 1,520 1,409 Personal Insurance 2,854 2,884 5,462 5,331 Total $ 7,751 $ 7,824 $ 15,903 $ 15,663 Net Written Premiums Three Months Ended
June 30,Six Months Ended
June 30,(in millions) 2020 2019 2020 2019 Business Insurance $ 3,777 $ 3,874 $ 7,967 $ 8,037 Bond & Specialty Insurance 734 710 1,397 1,297 Personal Insurance 2,835 2,866 5,328 5,173 Total $ 7,346 $ 7,450 $ 14,692 $ 14,507 written premiums in both the third quarter and first nine months of 2017 increased by 4% over the same periods of 2016. Netnet written premiums in the thirdsecond quarter of 2020 both decreased by 1% from the same period of 2019. Gross and net written premiums in the first ninesix months of 20172020 increased by 4%2% and 5%1%, respectively, over the same period of 2019. Gross and net written premiums in Business Insurance in both periods of 2016.2020 were negatively impacted by reduced exposures, reflecting the impact of COVID-19 and related economic conditions, including a decrease in new business levels. Gross and net written premiums in Personal Insurance in both periods of 2020 were negatively impacted by premium refunds provided to personal automobile customers in response to COVID-19 and related economic conditions. Gross and net written premiums in Bond & Specialty Insurance in both periods of 2020 were negatively impacted by lower surety volumes, primarily due to COVID-19 and related economic conditions. 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.
September 30,
September 30, Three Months Ended
June 30,Six Months Ended
June 30,(dollars in millions) 2020 2019 2020 2019 Revenues Earned premiums $ 3,735 $ 3,783 $ 7,599 $ 7,525 Net investment income 180 481 633 908 Fee income 108 111 210 215 Other revenues 36 30 67 73 Total revenues 4,059 4,405 8,509 8,721 Total claims and expenses 4,158 3,990 8,270 7,817 Segment income (loss) before income taxes (99) 415 239 904 Income tax expense (benefit) (41) 64 8 139 Segment income (loss) $ (58) $ 351 $ 231 $ 765 Loss and loss adjustment expense ratio 75.8 % 69.6 % 73.3 % 68.6 % Underwriting expense ratio 31.3 31.5 31.3 31.0 Combined ratio 107.1 % 101.1 % 104.6 % 99.6 % Segment incomethirdsecond quarter of 20172020 was $105$58 million, $328 million or 76% lower thancompared with segment income of $433$351 million in the same period of 2016,2019. The segment loss before income taxes primarily reflectingreflected the pre-tax impacts of (i) significantlylower net investment income, (ii) higher catastrophe losses and (ii) lower(iii) no net prior year reserve development, compared with net favorable prior year reserve development in the same period of 2019, partially offset by (iv) slightly higher underlying underwriting margins. Catastrophe losses in the thirdsecond quarters of 20172020 and 20162019 were $489$377 million and $74$211 million, respectively. There was no prior year reserve development in the second quarter of 2020. Net favorable prior year reserve development in the second quarter of 2019 was $71 million. The net impact of COVID-19 and related economic conditions on underlying underwriting margins was modest. The segment recorded an income tax benefit in the second quarter of 2020 compared to income tax expense in the same period of 2019, primarily reflecting the impact of the decrease in income before income taxes.third quartersfirst six months of 20172020 and 20162019 was $9$5 million and $4$50 million, respectively. The lower underlying underwriting margins primarily resulted from the impacts of (i) a high level of non-catastrophe fire-related lossesreflected net charges associated with COVID-19 and (ii) loss cost trends that modestly exceeded earned pricing. Partially offsetting this net pre-tax decrease in segment income was a related decrease in income tax expense.Segment income in the first nine months of 2017 was $976 million, $305 million or 24% lower than segment income of $1.28 billion in the same period of 2016, primarily reflecting the pre-tax impacts of (i) significantly higher catastrophe losses and (ii) lower underlying underwriting margins, partially offset by (iii) higher net investment income. Catastrophe losses in the first nine months of 2017 and 2016 were $805 million and $389 million, respectively. Net favorable prior year reserve development in the first nine months of 2017 and 2016 was $195 million and $203 million, respectively. The lower underlying underwriting margins primarily resulted from the impacts of (i) a high level of non-catastrophe fire-related losses and (ii) loss cost trends that modestly exceeded earned pricing. Partially offsetting this net pre-tax decrease in segment income was a related decrease in income tax expense.economic conditions. Income tax expense in the first ninesix months of 20172020 was also reduced by $15 million as a result of the resolution of prior year tax matters in the first quarter of 2017.RevenuesEarned PremiumsEarned premiums in the third quarter of 2017 were $3.58 billion, $79 million or 2% higherlower than in the same period of 2016. 2019, primarily reflecting the impact of the decrease in income before income taxes.first nine monthssecond quarter of 20172020 were $10.51$3.74 billion, $159$48 million or 2% higher1% lower than in the same period of 2016.Net Investment IncomeNet investment income2019. Earned premiums in the third quarterfirst six months of 2017 was $437 million, $62020 were $7.60 billion, $74 million or 1% higher than in the same period of 2016.2019. Earned premiums in both periods of 2020 were negatively impacted by reduced exposures and reductions in the Company's estimate of ultimate audit premiums receivable, in each case associated with the impact of COVID-19 and related economic conditions, including a decrease in new business levels.ninesix months of 20172020 was $1.34 billion, $103$633 million, $275 million or 8% higher30% lower than in the same period of 2016.2019. Refer to the “Net Investment Income” section of the “Consolidated Results of Operations” discussion hereinincreasesdecrease in the Company’s consolidated net investment income in the thirdsecond quarter and first ninesix months of 20172020 compared with the same periods of 2016.2019. In addition, refer to note 2 of notes to the consolidated financial statements in the Company’s 20162019 Annual Report as updated by the Company’s Current Report on Form 8-K filed on June 20, 2017 for a discussion of the Company’s net investment income allocation methodology.income.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 claims and policy management services to workers' compensation residual market pools. Fee income in the thirdsecond quarter of 20172020 was $108 million, $3 million or 3% lower than in the same period of 2016.2019. Fee income in the first ninesix months of 20172020 was $329$210 million, $11$5 million or 3%2% lower than in the same period of 2016.2019. The decreasedecreases in both periods primarilyof 2020 reflected lower serviced premiumclaim volume due to the depopulation of workers’ compensation residual market pools.all periodsthe second quarters and first six months of 2017both 2020 and 2016 included installment premium charges. Beginning in the third quarter of 2017, other revenues also2019 included revenues from Simply Business, which was acquired in August 2017. Other revenues in the first nine months of 2017 also included a gain related to the settlement of a reinsurance dispute in the second quarter of 2017. See “Gain Contingency” in note 13 of notes to the unaudited consolidated financial statements for further discussion. Other revenues in the first nine months of 2016 also included proceeds from the favorable settlement of a claims-related legal matter in the first quarter of 2016.thirdsecond quarter of 20172020 were $2.85$2.88 billion, $573$194 million or 25%7% higher than in the same period of 2016,2019, primarily reflecting the impacts of (i) significantly higher catastrophe losses, (ii) loss cost trends, (iii) a high levelno net prior year reserve development, compared with net favorable prior year reserve development in the same period of 2019, and (iv) the net adverse impact of changes in loss estimates across several product lines initially recognized in the last two quarters of 2019, partially offset by (v) the net impact of modestly lower loss estimates in certain product lines, primarily commercial automobile and modestly higher loss estimates in certain other product lines, primarily commercial property, in each case associated with the impact of COVID-19 and related economic conditions, (vi) lower non-catastrophe fire-relatedweather-related losses and (iv) higher volumes of insured exposures.ninesix months of 20172020 were $7.42$5.67 billion, $687$405 million or 10%8% higher than in the same period of 2016,2019, primarily reflecting the impacts of (i) significantly higher catastrophe losses, (ii) loss cost trends, (iii) higher volumesthe net adverse impact of insured exposureschanges in loss estimates across several product lines initially recognized in the last two quarters of 2019 and (iv) a high level of non-catastrophe fire-related losses.Factors contributing tolower net favorable prior year reserve development, partially offset by (v) lower International other loss activity.thirdsecond quarters and first ninesix months of 20172020 and 20162019 are discussed in more detail in note 67 of notes to the unaudited consolidated financial statements.thirdsecond quarter of 20172020 was $579$622 million, $16$4 million or 3%1% higher than in the same period of 2016.2019. Amortization of deferred acquisition costs in the first ninesix months of 20172020 was $1.70$1.26 billion, $38$25 million or 2% higher than in the same period of 2016.2019. The increases in both periods of 20172020 were generally consistent with the increaseschanges in earned premiums.thirdsecond quarter of 20172020 were $643$656 million, $7$30 million or 1%4% lower than in the same period of 2016.2019. General and administrative expenses in the second quarter of 2020 included the benefit of lower travel-related expenses, partially offset by an increased allowance for expected credit losses on premiums receivable, in each case attributable to COVID-19 and related economic conditions. General and administrative expenses in the first ninesix months of 20172020 were $1.89$1.34 billion, $25$23 million or 1%2% higher than in the same period of 2019. General and administrative expenses in the first six months of 2019 included a benefit related to a state assessment in the first quarter of 2019. General and administrative expenses in the first six months of 2020 also included an increased allowance for expected credit losses on premiums receivable, partially offset by lower travel-related expenses, in each case attributable to the impact of COVID-19 and related economic conditions.2016.Income Tax Expense (Benefit)The income tax benefit in the third quarter of 2017 was $(34) million, compared with income tax expense of $126 million in the same period of 2016,2019, primarily reflecting the impact of the $488$665 million decrease in income before income taxes in the third quarter of 2017. Income tax expense in the first nine months of 2017 was $235 million, $146 million or 38% lower than in the same period of 2016, primarily reflecting the impact of the $451 million decrease in income before income taxes in the first nine months of 2017 and the $15 million reduction in income tax expense resulting from the resolution of prior year tax matters in the first quarter of 2017.109.8%107.1% in the thirdsecond quarter of 20172020 was 13.76.0 points higher than the combined ratio of 96.1%101.1% in the same period of 2016. The combined ratio of 101.0% in the first nine months of 2017 was 5.1 points higher than the combined ratio of 95.9% in the same period of 2016.78.1%75.8% in the thirdsecond quarter of 20172020 was 14.66.2 points higher than the loss and loss adjustment expense ratio of 63.5%69.6% in the same period of 2016. 2019. The underwriting expense ratio of 31.3% for the second quarter of 2020 was 0.2 points lower than the underwriting expense ratio of 31.5% in the same period of 2019. thirdsecond quarters of 20172020 and 20162019 accounted for 13.510.1 points and 2.15.6 points, respectively, of the loss and loss adjustment expensecombined ratio. There was no net prior year reserve development in the second quarter of 2020. Net favorable prior year reserve development in the third quarterssecond quarter of 2017 and 20162019 provided 0.3 points and 0.11.9 points of benefit to the loss and loss adjustment expensecombined ratio. The underlying combined ratio respectively. The 2017 thirdin the second quarter of 2020 was 0.4 points lower than the 2019 ratio on the same basis, reflecting a 0.2 point improvement in each of the underlying loss and loss adjustment expense ratio and the underwriting expense ratio. The net impact of COVID-19 and related economic conditions was 3.4modest.2016combined ratio onof 99.6% in the same basis, primarily reflecting the impactsperiod of (i) a high level of non-catastrophe fire-related losses and (ii) loss cost trends that modestly exceeded earned pricing.69.1%73.3% in the first ninesix months of 20172020 was 5.64.7 points higher than the loss and loss adjustment expense ratio of 63.5%68.6% in the same period of 2016. 2019. The underwriting expense ratio of 31.3% for the first six months of 2020 was 0.3 points higher than the underwriting expense ratio of 31.0% in the same period of 2019.ninesix months of 20172020 and 20162019 accounted for 7.67.5 points and 3.84.1 points, respectively, of the loss and loss adjustment expense ratio, respectively.combined ratio. Net favorable prior year reserve development in the first ninesix months of 2017 and 20162020 had no impact on the combined ratio. Net favorable prior year reserve development in the first six months of 2019 provided 1.9 points and 2.00.7 points of benefit respectively, to the loss and loss adjustment expensecombined ratio. The underlying loss and loss adjustment expensecombined ratio in the first ninesix months of 20172020 was 1.70.9 points higher than the 20162019 ratio on the same basis, primarily reflecting the impacts of (i) a high level of non-catastrophe fire-related lossesnet charges associated with COVID-19 and (ii) loss cost trends that modestly exceeded earned pricing.The underwriting expense ratio of 31.7% for the third quarter of 2017 was 0.9 points lower than the underwriting expense ratio of 32.6% in the same period of 2016. In the first nine months of 2017, the underwriting expense ratio of 31.9% was 0.5 points lower than the underwriting expense ratio of 32.4% in the same period of 2016.
September 30,
September 30,
September 30,
September 30, Gross Written Premiums Three Months Ended
June 30,Six Months Ended
June 30,(in millions) 2020 2019 2020 2019 Domestic: Select Accounts $ 736 $ 759 $ 1,557 $ 1,572 Middle Market 2,107 2,139 4,676 4,675 National Accounts 319 327 827 834 National Property and Other 639 627 1,195 1,136 Total Domestic 3,801 3,852 8,255 8,217 International 326 341 666 706 Total Business Insurance $ 4,127 $ 4,193 $ 8,921 $ 8,923 Net Written Premiums Three Months Ended
June 30,Six Months Ended
June 30,(in millions) 2020 2019 2020 2019 Domestic: Select Accounts $ 734 $ 756 $ 1,533 $ 1,541 Middle Market 1,960 2,009 4,368 4,419 National Accounts 215 223 516 527 National Property and Other 585 588 1,013 975 Total Domestic 3,494 3,576 7,430 7,462 International 283 298 537 575 Total Business Insurance $ 3,777 $ 3,874 $ 7,967 $ 8,037 both the thirdsecond quarter andof 2020 decreased by 2% from the same period of 2019. Gross written premiums in the first ninesix months of 2017 increased by 1% over2020 were comparable with the same periodsperiod of 2016.2019. Net written premiums in the thirdsecond quarter and first ninesix months of 2017 increased2020 decreased by 1%3% and 2%1%, respectively, overfrom the same periods of 2016.$664$734 million and $2.14in the second quarter of 2020 decreased by 3% from the same period of 2019. Net written premiums of $1.53 billion in the third quarter and first ninesix months of 2017, respectively, increased2020 decreased by 1% and 2%, respectively, overfrom the same periodsperiod of 2016.2019. Business retention rates remained strong in the thirdsecond quarter and first ninesix months of 2017.2020. Renewal premium changes in the thirdsecond quarter and first ninesix months of 20172020 remained positive but were lower than in the same periods of 2016.2019. New business premiums in the thirdsecond quarter and first ninesix months of 2017 increased over2020 decreased from the same periods of 2016.$1.90 billion and $5.89$1.96 billion in the thirdsecond quarter andof 2020 decreased by 2% from the same period of 2019. Net written premiums of $4.37 billion in the first ninesix months of 2017, respectively, increased2020 decreased by 4% and 5%, respectively, over1% from the same periodsperiod of 2016.2019. Business retention rates remained strong in the thirdsecond quarter and first ninesix months of 2017.2020. Renewal premium changes in the thirdsecond quarter and first ninesix months of 20172020 remained positive but were lower than in the same periods of 2019. New business premiums in the second quarter and first six months of 2020 decreased from the same periods of 2019.2016.2019. New business premiums in the thirdsecond quarter of 20172020 decreased slightly from the same period of 2019. New business premiums in the first six months of 2020 increased slightly over the same period of 2016, while new business2019.first nine monthssecond quarter of 20172020 decreased by 5% from the same period of 2016.National Accounts.2019. Net written premiums of $244 million in the third quarter of 2017 were comparable with the same period of 2016, and net written premiums of $751$537 million in the first ninesix months of 20172020 decreased by 6%7% from the same period of 2016. Business retention rates remained strong2019. The declines in both periods of 2020 were primarily driven by decreases in the third quarter and first nine months of 2017. Renewal premium changes in the third quarter of 2017 were slightly negative, compared with positive in the same period of 2016. Renewal premium changes in the first nine months of 2017 remained slightly positive but were lower than in the same period of 2016. New business premiums in the third quarter and first nine months of 2017 decreased from the same periods of 2016.National Property and Other. Net written premiums of $428 million and $1.31 billion in the third quarter and first nine months of 2017, respectively, decreased by 6% and 5%, respectively, from the same periods of 2016. Business retention rates in the third quarter and first nine months of 2017 declined from the same periods of 2016. Renewal premium changes in the third quarter of 2017 remained positive but were lower than in the same period of 2016, while renewal premium changes in the first nine months of 2017 remained positive and were higher than in the same period of 2016. New business premiums in the third quarter and first nine months of 2017 decreased from the same periods of 2016.International. Net written premiums of $202 million in the third quarter of 2017 decreased by 3% from the same period of 2016, primarily due to reinsurance reinstatement premiums resulting from catastrophe losses in the third quarter of 2017. Net written premiums of $740 million in the first nine months of 2017 increased by 3% over the same period of 2016, driven by the Company’sCompany's operations at Lloyd’s.
September 30,
September 30, Three Months Ended
June 30,Six Months Ended
June 30,(dollars in millions) 2020 2019 2020 2019 Revenues Earned premiums $ 693 $ 632 $ 1,360 $ 1,238 Net investment income 42 58 97 114 Other revenues 5 6 10 12 Total revenues 740 696 1,467 1,364 Total claims and expenses 654 476 1,230 971 Segment income before income taxes 86 220 237 393 Income tax expense 14 46 43 81 Segment income $ 72 $ 174 $ 194 $ 312 Loss and loss adjustment expense ratio 57.8 % 37.4 % 53.4 % 40.3 % Underwriting expense ratio 36.0 37.5 36.5 37.6 Combined ratio 93.8 % 74.9 % 89.9 % 77.9 % thirdsecond quarter of 20172020 was $136$72 million, $29$102 million or 18%59% lower than segment income of $165$174 million in the same period of 2016,2019. The decrease in segment income before income taxes primarily reflectingreflected the pre-tax impactimpacts of lower(i) net favorableunfavorable prior year reserve development. Netdevelopment compared to net favorable prior year reserve development in the third quarterssame period of 20172019, (ii) lower underlying underwriting margins and 2016(iii) lower net investment income. Net unfavorable prior year reserve development in the second quarter of 2020 was $6$33 million, and $46 million, respectively.as compared to net favorable prior year reserve development in the second quarter of 2019 of $39 million. Catastrophe losses in the third quarterssecond quarter of 20172020 were $7 million, as compared to catastrophe losses in the second quarter of 2019 of less than $1 million. The lower underlying underwriting margins primarily reflected the impacts of higher loss estimates for management liability coverages, including the impact of COVID-19 and 2016 were $6 million and $1 million, respectively. Partially offsetting this net pre-taxrelated economic conditions, partially offset by higher business volumes. Income tax expense in the second quarter of 2020 was lower than in the same period of 2019, primarily reflecting the impact of the decrease in segment income was a related decrease inbefore income tax expense.ninesix months of 20172020 was $444$194 million, $96$118 million or 18%38% lower than segment income of $540$312 million in the same period of 2016,2019. The decrease in segment income before income taxes primarily reflectingreflected the pre-tax impactimpacts of lower(i) net unfavorable prior year reserve development compared to net favorable prior year reserve development. development in the same period of 2019, (ii) lower underlying underwriting margins and (iii) lower net investment income. Net unfavorable prior year reserve development in the first six months of 2020 was $33 million, as compared to net favorable prior year reserve development in the first ninesix months of 2017 and 2016 was $98 million and $271 million, respectively.2019 of $42 million. Catastrophe losses in the first ninesix months of 20172020 and 20162019 were $8 million and $5$3 million, respectively. Partially offsetting this net pre-tax decrease in segment income was aThe lower underlying underwriting margins primarily reflected the impacts of higher loss estimates for management liability coverages, including the impact of COVID-19 and related decrease in income tax expense.economic conditions, partially offset by higher business volumes. Income tax expense in the first ninesix months of 20172020 was also reduced by $17 million as a resultlower than in the same period of 2019, primarily reflecting the impact of the resolution of prior year tax mattersdecrease in the first quarter of 2017.thirdsecond quarter of 20172020 were $591$693 million, $18$61 million or 3%10% higher than in the same period of 2016.2019. Earned premiums in the first ninesix months of 20172020 were $1.72$1.36 billion, $37$122 million or 2%10% higher than in the same period of 2016.thirdsecond quarter of 20172020 was $57$42 million, $2$16 million or 3%28% lower than in the same period of 2016.2019. Net investment income in the first ninesix months of 20172020 was $174$97 million, $3$17 million or 2%15% lower than in the same period of 2016.2019. 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. As a result, reported net investment income in Bond & Specialty Insurance reflects a significantly smaller proportion of allocated net investment income, including that from the Company’s non-fixed maturity investments that experienced an increase in investment income in the third quarter and first nine months of 2017 as compared with the same periods of 2016. Refer to the “Net Investment Income” section of “Consolidated Results of Operations” herein for a discussion of the increasesdecreases in the Company’s consolidated net investment income in the thirdsecond quarter and first ninesix months of 2017 as2020 compared with the same periods of 2016.2019. In addition, refer to note 2 of notes to the consolidated financial statements in the Company’s 20162019 Annual Report as updated by the Company’s Current Report on Form 8-K filed on June 20, 2017 for a discussion of the Company’s net investment income allocation methodology.thirdsecond quarter of 20172020 were $236$403 million, $50$165 million or 27%69% higher than in the same period of 2016,2019, primarily reflecting lowerthe impacts of (i) net unfavorable prior year reserve development compared to net favorable prior year reserve development. in the same period of 2019, (ii) higher loss estimates for management liability coverages, including the impact of COVID-19 and related economic conditions and (iii) higher business volumes.ninesix months of 20172020 were $637$730 million, $179$226 million or 39%45% higher than in the same period of 2016,2019, primarily reflecting lowerthe impacts of (i) net favorableunfavorable prior year reserve development.Factors contributingdevelopment compared to net favorable prior year reserve development in the same period of 2019, (ii) higher loss estimates for management liability coverages, including the impact of COVID-19 and related economic conditions and (iii) higher business volumes.third quarter of 2016second quarters and the first ninesix months of 20172020 and 20162019 are discussed in more detail in note 67 of notes to the unaudited consolidated financial statements.thirdsecond quarter of 20172020 was $111$128 million, $2$10 million or 2%8% higher than in the same period of 2016.2019. Amortization of deferred acquisition costs in the first ninesix months of 20172020 was $322$252 million, $7$22 million or 2%10% higher than in the same period of 2016.2019. The increases in both periods of 20172020 were generally consistent with the increases in earned premiums.thirdsecond quarter of 20172020 were $115$123 million, $3 million or 3% higher than in the same period of 2016.2019. General and administrative expenses in the first ninesix months of 20172020 were $344$248 million, $16$11 million or 5% higher than in the same period of 2016.2019. The increases in both periods of 20172020 primarily reflected the impact of higher employeebusiness volumes, partially offset by lower travel-related expenses attributable to COVID-19 and technology related expenses.thirdsecond quarter of 20172020 was $55$14 million, $10 $32 million or 15%70% lower than in the same period of 2016,2019, primarily reflecting the impact of the $39$134 million decrease in segment income before income taxes in the third quarter of 2017.taxes. Income tax expense in the first ninesix months of 20172020 was $164$43 million, $70$38 million or 30%47% lower than in the same period of 2016,2019, primarily reflecting the impact of the $166$156 million decrease in segment income before income taxes in the first nine months of 2016 and the $17 million reduction in income tax expense in the first nine months of 2017 resulting from the resolution of prior year tax matters in the first quarter of 2017.77.7%93.8% in the thirdsecond quarter of 20172020 was 7.118.9 points higher than the combined ratio of 70.6%74.9% in the same period of 2016. The combined ratio of 75.3% in the first nine months of 2017 was 10.3 points higher than the combined ratio of 65.0% in the same period of 2016.39.5%57.8% in the thirdsecond quarter of 20172020 was 7.520.4 points higher than the loss and loss adjustment expense ratio of 32.0%37.4% in the same period of 2016.2019. The underwriting expense ratio of 36.0% in the second quarter of 2020 was 1.5 points lower than the underwriting expense ratio of 37.5% in the same period of 2019.third quarterssecond quarter of 2017 and 20162019 provided 0.9 points and 8.16.2 points of benefit respectively, to the loss and loss adjustment expensecombined ratio. Catastrophe losses in the thirdsecond quarters of 20172020 and 20162019 accounted for 0.91.0 points and 0.20.1 points, respectively, of the loss and loss adjustment expensecombined ratio. The 2017 thirdunderlying combined ratio in the second quarter underlying loss and loss adjustment expense ratioof 2020 was 0.47.1 points lowerhigher than the 20162019 ratio on the same basis.36.6%53.4% in the first ninesix months of 20172020 was 9.813.1 points higher than the loss and loss adjustment expense ratio of 26.8%40.3% in the same period of 2016.2019. The underwriting expense ratio of 36.5% in the first six months of 2020 was 1.1 points lower than the underwriting expense ratio of 37.6% in the same period of 2019.ninesix months of 2017 and 20162019 provided 5.7 points and 16.13.4 points of benefit respectively, to the loss and loss adjustment expensecombined ratio. Catastrophe losses in the first ninesix months of 20172020 and 20162019 accounted for 0.50.6 points and 0.30.2 points, respectively, of the loss and loss adjustment expensecombined ratio. The underlying loss and loss adjustment expensecombined ratio in the first ninesix months of 20172020 was 0.85.8 points lowerhigher than the 20162019 ratio on the same basis.The underwriting expense ratiobasis, primarily reflecting the impact of 38.2% inhigher loss estimates for management liability coverages, including the third quarterimpact of 2017 was 0.4 points lower than the underwriting expense ratio of 38.6% in the same period of 2016. In the first nine months of 2017, the underwriting expense ratio of 38.7% was 0.5 points higher than the underwriting expense ratio of 38.2% in the same period of 2016.
September 30,
September 30,
September 30,
September 30, Gross Written Premiums Three Months Ended
June 30,Six Months Ended
June 30,(in millions) 2020 2019 2020 2019 Domestic: Management Liability $ 466 $ 432 $ 904 $ 821 Surety 228 251 478 473 Total Domestic 694 683 1,382 1,294 International 76 64 138 115 Total Bond & Specialty Insurance $ 770 $ 747 $ 1,520 $ 1,409 Net Written Premiums Three Months Ended
June 30,Six Months Ended
June 30,(in millions) 2020 2019 2020 2019 Domestic: Management Liability $ 438 $ 403 $ 839 $ 770 Surety 220 244 435 428 Total Domestic 658 647 1,274 1,198 International 76 63 123 99 Total Bond & Specialty Insurance $ 734 $ 710 $ 1,397 $ 1,297 thirdsecond quarter of 20172020 both increased by 3% over the same period of 2019. Gross and net written premiums in the first six months of 2020 both increased by 8% over the same period of 2019. Gross and net written premiums in both periods of 2020 were negatively impacted by lower surety volumes, primarily due to COVID-19 and related economic conditions.2016. Gross and net2019. Net written premiums of $1.27 billion in the first ninesix months of 2017 both2020 increased by 4%6% over the same period of 2016.Domestic. Net written premiums of $571 million and $1.63 billion in the third quarter and first nine months of 2017, respectively, increased by 1% and 2%, respectively, over the same periods of 2016.2019. Excluding the surety line of business, for which the following are not relevant measures, business retention rates remained strong in the thirdsecond quarter and first ninesix months of 2017.2020. Renewal premium changes in the thirdsecond quarter and first six months of 20172020 remained positive and were slightly higher than in the same periodperiods of 2016. Renewal premium changes in the first nine months of 2017 remained positive and were comparable with the same period of 2016.2019. New business premiums in the thirdsecond quarter and first ninesix months of 2017 were comparable with2020 decreased from the same periods of 2016.$40$76 million and $126$123 million in the thirdsecond quarter and first ninesix months of 2017,2020, respectively, increased by 18%21% and 29%24%, respectively, over the same periods of 2016,2019. The increases in both periods of 2020 were primarily driven by increases in the United Kingdom and Canada.
September 30,
September 30, Three Months Ended
June 30,Six Months Ended
June 30,(dollars in millions) 2020 2019 2020 2019 Revenues Earned premiums $ 2,527 $ 2,573 $ 5,225 $ 5,080 Net investment income 46 109 149 208 Fee income 6 5 12 10 Other revenues 10 21 32 43 Total revenues 2,589 2,708 5,418 5,341 Total claims and expenses 2,580 2,606 4,989 4,892 Segment income before income taxes 9 102 429 449 Income tax expense (benefit) (1) 14 83 83 Segment income $ 10 $ 88 $ 346 $ 366 Loss and loss adjustment expense ratio 72.2 % 73.7 % 66.9 % 68.8 % Underwriting expense ratio 29.1 26.5 27.6 26.4 Combined ratio 101.3 % 100.2 % 94.5 % 95.2 % thirdsecond quarter of 20172020 was $77$10 million, $86$78 million or 53%89% lower than segment income of $163$88 million in the same period of 2016,2019. The decrease in segment income before income taxes primarily reflectingreflected the pre-tax impacts of (i) significantly higher catastrophe losses and (ii) lower net investment income, partially offset by (ii)(iii) higher underlying underwriting margins.margins and (iv) higher net favorable prior year reserve development. Catastrophe losses in the thirdsecond quarters of 20172020 and 20162019 were $205$470 million and $14$156 million, respectively. There was no netNet favorable prior year reserve development in the thirdsecond quarters of 2020 and 2019 was $35 million and $13 million, respectively. The higher underlying underwriting margins primarily reflected the impacts of lower non-catastrophe weather-related losses in the homeowners and other product line and lower losses in the automobile product line due to a decrease in miles driven attributable to COVID-19 and related economic conditions (net of premium refunds provided to personal automobile customers). The segment recorded a modest income tax benefit in the second quarter of 2017,2020 compared with net unfavorable prior year reserve developmentto income tax expense in the same period of $112019.2016.2019. The higher underlying underwriting margins primarily resulted from the impact of increased business volumes. Partially offsetting this net pre-tax decrease in segment income was a related decrease inbefore income tax expense.Segment income in the first nine months of 2017 was $178 million, $232 million or 57% lower than segment income of $410 million in the same period of 2016,taxes primarily reflectingreflected the pre-tax impacts of (i) significantly higher catastrophe losses, (ii) lower underlying underwriting marginsnet investment income and (iii) lower net favorable prior year reserve development, partiallylargely offset by (iv) higher net investment income.underlying underwriting margins. Catastrophe losses in the first ninesix months of 20172020 and 20162019 were $637$607 million and $346$251 million, respectively. Net favorable prior year reserve development in the first ninesix months of 20172020 and 20162019 was $6$57 million and $33$82 million, respectively. The lowerhigher underlying underwriting margins primarily resulted fromreflected the impacts of (i) normal variability inlower non-catastrophe weather-related losses in the homeowners and (ii)other product line and lower losses in the timingautomobile product line due to a decrease in miles driven attributable to COVID-19 and related economic conditions (net of higher loss estimates inpremium refunds provided to personal automobile bodily injury liability coverages that were consistent with the higher loss trends recognized in the latter part of 2016, partially offset by (iii) increased business volumes. Partially offsetting this net pre-tax decrease in segment income was a related decrease in income tax expense.customers). Income tax expense in the first ninesix months of 20172020 was also reduced by $7 million as a resultlevel with the same period of the resolution of prior year tax matters in the first quarter of 2017.thirdsecond quarter of 20172020 were $2.36$2.53 billion, $217$46 million or 10%2% lower than in the same period of 2019. Earned premiums in the first six months of 2020 were $5.23 billion, $145 million or 3% higher than in the same period of 2016. Earned2019. The changes in earned premiums in the first nine months of 2017 were $6.83 billion, $604 million or 10% higher than in the same period of 2016. The increases in both periods primarily reflected the impact of increaseschanges in net written premiums over the preceding twelve months.thirdsecond quarter of 20172020 was $94$46 million, $2$63 million or 2% higher58% lower than in the same period of 2016.2019. Net investment income in the first ninesix months of 20172020 was $285$149 million, $21$59 million or 8% higher28% lower than in the same period of 2016.2019. Refer to the “Net Investment Income” section of the “Consolidated Results of Operations” discussion herein for a description of the factors contributing to the increasesdecreases in the Company’s consolidated net investment income in the thirdsecond quarter and first ninesix months of 20172020 compared with the same periods of 2016.2019. In addition, refer to note 2 of notes to the consolidated financial statements in the Company’s 20162019 Annual Report as updated by the Company’s Current Report on Form 8-K filed on June 20, 2017 for a discussion of the Company’s net investment income allocation methodology.thirdsecond quarters and first ninesix months of 20172020 and 20162019 primarily consisted of installment premium charges.thirdsecond quarter of 20172020 were $1.72$1.82 billion, $327$73 million or 23% higher4% lower than in the same period of 2016,2019, primarily reflecting the impacts of (i) significantlylower losses in the automobile product line due to a decrease in miles driven attributable to COVID-19 and related economic conditions, (ii) lower non-catastrophe weather-related losses in the homeowners and other product line and (iii) higher net favorable prior year reserve development, partially offset by (iv) higher catastrophe losses, (ii) higher volumes of insured exposures and (iii)(v) loss cost trends.ninesix months of 20172020 were $5.07$3.50 billion, $929comparable with the same period of 2019, primarily reflecting the impacts of (i) lower losses in the automobile product line due to a decrease in miles driven attributable to COVID-19 and related economic conditions and (ii) lower non-catastrophe weather-related losses in the homeowners and other product line, largely offset by (iii) higher catastrophe losses, (iv) higher business volumes and (v) loss cost trends.22%6% higher than in the same period of 2016, primarily reflecting the impacts of (i) higher volumes of insured exposures, (ii) higher catastrophe losses, (iii) loss cost trends, (iv) normal variability in non-catastrophe weather-related losses, (v) the timing of higher loss estimates in personal automobile bodily injury liability coverages that were consistent with the higher loss trends recognized in the latter part of 2016 and (vi) lower net favorable prior year reserve development.Factors contributing to net prior year reserve development during the third quarter and first nine months of 2016 are discussed in more detail in note 6 of notes to the unaudited consolidated financial statements.Amortization of Deferred Acquisition CostsAmortization of deferred acquisition costs in the third quarter of 2017 was $369 million, $29 million or 9% higher than in the same period of 2016.2019. Amortization of deferred acquisition costs in the first ninesix months of 20172020 was $1.07 billion, $77$841 million, $53 million or 8%7% higher than in the same period of 2016. 2019. The increases in both periods of 20172020 were generally consistent with the increases in earned premiums.thirdsecond quarter of 20172020 were $280$333 million, $7$22 million or 2% lower7% higher than in the same period of 2016.2019. General and administrative expenses in the first ninesix months of 20172020 were $830$653 million, $11$42 million or 1% lower7% higher than in the same period of 2016.Income (Benefit)in the third quarter of 2017 was $20$14 million $46 million or 70% lower than in the same period of 2016,2019, primarily reflecting the impact of the $132$93 million decrease in segment income before income taxes in the third quarter of 2017.taxes. Income tax expense in the first ninesix months of 20172020 was $20$83 million, $139 million or 87% lower than inlevel with the same period of 2016, primarily reflecting the impact of the $371 million decrease in income before income taxes in the first nine months of 2016 and the $7 million reduction in income tax expense in the first nine months of 2017 resulting from the resolution of prior year tax matters in the first quarter of 2017.99.7%101.3% in the thirdsecond quarter of 20172020 was 6.21.1 points higher than the combined ratio of 93.5% in the same period of 2016. The combined ratio of 101.1% in the first nine months of 2017 was 6.1 points higher than the combined ratio of 95.0%100.2% in the same period of 2016.73.1%72.2% in the thirdsecond quarter of 20172020 was 7.91.5 points higherlower than the loss and loss adjustment expense ratio of 65.2%73.7% in the same period of 2016. Catastrophe losses accounted2019. The underwriting expense ratio of 29.1% for 8.4 points and 0.6 points of the loss and loss adjustment expense ratios in the thirdsecond quarter of 2017 and 2016, respectively. Net unfavorable prior year reserve development in the third quarter of 2016 accounted for 0.5 points of the loss and loss adjustment expense ratio. The 2017 third quarter underlying loss and loss adjustment expense ratio2020 was 0.62.6 points higher than the 2016 ratio on the same basis.The loss and loss adjustmentunderwriting expense ratio of 74.2% in the first nine months of 2017 was 7.7 points higher than the loss and loss adjustment expense ratio of 66.5%26.5% in the same period of 2016. 2019.9.218.6 points and 5.56.1 points, respectively, of the loss and loss adjustment expense ratios in the first nine months of 2017 and 2016, respectively. combined ratio. Net favorable prior year reserve development in the first nine monthssecond quarters of 20172020 and 20162019 provided 0.11.3 points and 0.5 points, respectively, of benefit respectively, to the loss and loss adjustment expensecombined ratio. The underlying loss and loss adjustment expensecombined ratio in the first nine monthssecond quarter of 20172020 was 3.610.6 points higherlower than the 20162019 ratio on the same basis, primarily reflecting the impacts of (i) normal variability inlower non-catastrophe weather-related losses (ii) the tenure impact of higher levels of new business in recent years in the Automobilehomeowners and other product line and (iii)lower losses in the timingautomobile product line due to a decrease in miles driven attributable to COVID-19 and related economic conditions (net of higher loss estimates inpremium refunds provided to personal automobile bodily injury liability coverages that were consistent with the higher loss trends recognizedcustomers).latter partfirst six months of 2016.26.6% for27.6% in the third quarterfirst six months of 20172020 was 1.71.2 points lowerhigher than the underwriting expense ratio of 28.3%26.4% in the same period of 2016. In2019.ninesix months of 2017,2020 and 2019 accounted for 11.6 points and 4.9 points, respectively, of the underwriting expensecombined ratio. Net favorable prior year reserve development in the first six months of 2020 and 2019 provided 1.1 points and 1.6 points of benefit, respectively, to the combined ratio. The underlying combined ratio in the first six months of 26.9%2020 was 1.67.9 points lower than the underwriting expense2019 ratio on the same basis, primarily reflecting the impacts of 28.5%lower non-catastrophe weather-related losses in the same period of 2016. The declines in both periods of 2017 primarily reflected the impact of higher levels of earned premiumshomeowners and other product line and lower levelslosses in the automobile product line due to a decrease in miles driven attributable to COVID-19 and related economic conditions (net of general and administrative expenses.
September 30,
September 30,
September 30,
September 30, Gross Written Premiums Three Months Ended
June 30,Six Months Ended
June 30,(in millions) 2020 2019 2020 2019 Domestic: Agency: Automobile $ 1,145 $ 1,304 $ 2,417 $ 2,544 Homeowners and Other 1,432 1,268 2,518 2,222 Total Agency 2,577 2,572 4,935 4,766 Direct-to-Consumer 101 103 205 201 Total Domestic 2,678 2,675 5,140 4,967 International 176 209 322 364 Total Personal Insurance $ 2,854 $ 2,884 $ 5,462 $ 5,331 Net Written Premiums Three Months Ended
June 30,Six Months Ended
June 30,(in millions) 2020 2019 2020 2019 Domestic: Agency: Automobile $ 1,141 $ 1,300 $ 2,401 $ 2,524 Homeowners and Other 1,419 1,258 2,409 2,095 Total Agency 2,560 2,558 4,810 4,619 Direct-to-Consumer 102 103 202 198 Total Domestic 2,662 2,661 5,012 4,817 International 173 205 316 356 Total Personal Insurance $ 2,835 $ 2,866 $ 5,328 $ 5,173 thirdsecond quarter of 20172020 were both increased by 8% overcomparable with the same period of 2016.2019. Domestic Agency gross and net written premiums in the first ninesix months of 20172020 both increased by 9%4% over the same period of 2016.$1.23$1.14 billion and $3.47$2.40 billion in the thirdsecond quarter and first ninesix months of 2017,2020, respectively, decreased by 12% and 5%, respectively, from the same periods of 2019. Net written premiums in both periods of 2020 were impacted by premium refunds provided in the second quarter of 2020 to personal automobile customers in response to COVID-19 and related economic conditions. Business retention rates remained strong in the second quarter and first six months of 2020. Renewal premium changes in the second quarter and first six months of 2020 remained positive but were lower than in the same periods of 2019. New business premiums in the second quarter and first six months of 2020 increased over the same periods of 2019.12%13% and 14%15%, respectively, over the same periods of 2016.2019. Business retention rates remained strong in the thirdsecond quarter and first ninesix months of 2017.2020. Renewal premium changes in the thirdsecond quarter and first ninesix months of 20172020 remained positive and were higher than in the same periods of 2016.2019. New business premiums in the thirdsecond quarter and first ninesix months of 2017 decreased from the same periods of 2016.Domestic Agency Homeowners and Other net written premiums of $1.11 billion and $2.98 billion in the third quarter and first nine months of 2017, respectively, increased by 5% and 4%, respectively, over the same periods of 2016. Business retention rates remained strong in the third quarter and first nine months of 2017. Renewal premium changes in the third quarter and first nine months of 2017 remained positive but were lower than in the same periods of 2016. New business premiums in the third quarter and first nine months of 20172020 increased over the same periods of 2016.the Personal Insurance segment had approximately 6.97.8 million and 6.57.3 million active policies at SeptemberJune 30, 20172020 and 2016,2019, respectively.$100 million and $271$102 million in the thirdsecond quarter andof 2020 decreased by 1% from the same period of 2019. Net written premiums of $202 million in the first ninesix months of 2017, respectively,2020 increased by 15% and 18%, respectively,2% over the same period of 2019. Net written premiums in both periods of 2016, primarily driven2020 were impacted by growthpremium refunds provided in the second quarter of 2020 to personal automobile net written premiums.$180$173 million and $486$316 million in the thirdsecond quarter and first ninesix months of 2017,2020, respectively, increaseddecreased by 12%16% and 6%11%, respectively, overfrom the same periods of 2016,2019, primarily driven by growthdeclines in the automobile netproduct line. Net written premiums in both periods of 2020 were impacted by premium refunds provided in the second quarter of 2020 to personal automobile customers in response to COVID-19 and the impact of changes in foreign currency exchange rates.872,000847,000 and 856,000901,000 active policies at SeptemberJune 30, 20172020 and 2016,2019, respectively.
September 30,
September 30, Three Months Ended
June 30,Six Months Ended
June 30,(in millions) 2020 2019 2020 2019 Income (loss) $ (74) $ (76) $ (145) $ (151) thirdsecond quarters of 20172020 and 20162019 was $(65)$(74) million and $(60)$(76) million, respectively. Pre-tax interest expense in the second quarters of 2020 and 2019 was $85 million and $89 million, respectively. After-tax interest expense in the second quarters of 2020 and 2019 was $67 million and $70 million, respectively. The Income (loss) for Interest Expense and Other in the first ninesix months of 20172020 and 20162019 was $(188)$(145) million and $(183)$(151) million, respectively. Pre-tax interest expense in the first six months of 2020 and 2019 was $169 million and $177 million, respectively. After-tax interest expense in the third quarter and first ninesix months of 20172020 and 2019 was $61$133 million and $179$140 million, respectively, compared with $57 million and $177 million in the respective periods of 2016.claims from the Company’s policyholders (which includes others seeking coverage under a policy).claims. Factors underlying these claim filings include continued intensive advertising by lawyers seeking asbestos claimants and the continued focus by plaintiffs on defendants 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. In addition to contributing to the overall number of claims, bankruptcy proceedings may increase the volatility of asbestos-related losses by initially delaying the reporting of claims and later by significantly accelerating and increasing loss payments by insurers, including the Company. 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.coveragedisputes, including litigation, concerningwith a number of policyholders, some of whom have filedare in bankruptcy, over coverage for bankruptcy, who in some instances have asserted that all or a portion of their asbestos-related claims are not subject to aggregate limits on coverage. In these instances, policyholders also may assert that each individual bodily injury claim should be treated as a separate occurrence under the policy. It is difficult to predict whether these policyholders will be successful on both issues. To the extent both issues are resolved in a policyholder’s favor and other Company defenses are not successful, the Company’s coverage obligations under the policies at issue would be materially increased and boundedonly by the applicable per-occurrence limits and the number of asbestos bodily injury claims against the policyholders. Although the Company has seen a reduction in the overall risk associated with these lawsuits, it remains difficult to predict the ultimate cost of these claims.There also may be instances whereAlthough the Company has seen a court may not approve a proposed settlement, which may resultreduction in additional litigation and potentially less beneficial outcomes for the Company.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.the filing of other direct actions against insurers, including the Company, could be madefiled in the future. It is difficult to predict the outcome of these proceedings, including whether the plaintiffs willwould be able to sustain these actions against insurers based on novel legal theories of liability. The Company believes it has meritorious defenses to theseany such claims and has received favorable rulings in certain jurisdictions.On January 29, 2009, the Company and PPG Industries, Inc. (PPG), along with approximately 30 other insurers of PPG, agreed in principle to settle asbestos-related coverage litigation under insurance policies issued to PPG (the “Agreement”). The Agreement was incorporated into the Modified Third Amended Plan of Reorganization (“Amended Plan”) proposed as part of the Pittsburgh Corning Corp. (PCC, which is 50% owned by PPG) bankruptcy proceeding. Pursuant to the Amended Plan, which was filed on January 30, 2009, PCC, along with enumerated other companies (including PPG as well as the Company as a participating insurer), receive protections afforded by Section 524(g) of the Bankruptcy Code from certain asbestos-related bodily injury claims. Under the Agreement, the Company had the option to make a series of payments over 20 years totaling approximately $620 million to the Trust created under the Amended Plan, or it could elect to make a discounted payment. On January 7, 2016, the remaining objections to the Amended Plan were dismissed. On April 27, 2016, the Amended Plan became effective and all the remaining conditions to the Agreement were satisfied. The Company fully satisfied its obligation under the Agreement by making a discounted payment in the second quarter of 2016. The Company’s payments totaled $524 million, of which $518 million was related to asbestos reserves. The Company’s obligations under the Agreement were included in its claims and claim adjustment expense reserves at March 31, 2016 and December 31, 2015. which 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.In the third quarter of 2017, the Company completed its annual in-depth asbestos claim review, including a review of active policyholders and litigation cases for potential product and “non-product” liability, and noted the continuation of the following trends:· a high level of litigation activity in certain jurisdictions involving individuals alleging serious asbestos-related illness, primarily involving mesothelioma claims;· while overall payment patterns have been generally stable, there has been an increase in severity for certain policyholders due to the high level of litigation activity; and· a moderate level of asbestos-related bankruptcy activity.In the Home Office and Field Office category, which accounts for the vast majority of policyholders with active asbestos-related claims, the number of policyholders tendering asbestos claims for the first time and the number of policyholders with open asbestos claims declined slightly when compared to 2016 while net asbestos-related payments were somewhat higher. Payments on behalf of policyholders in this category continue to be influenced by the high level of litigation activity in a limited number of jurisdictions where individuals alleging serious asbestos-related injury, primarily mesothelioma, continue to target defendants who were not traditionally primary targets of asbestos litigation.Home Officehome office and Field Office,field office category and Assumed Reinsurancethe assumed reinsurance and Other categoriesother category as well as projected reinsurance billings and recoveries. In addition, the Company reviews its historical gross and net loss and expense paid experience, year-by-year, to assess any emerging trends, fluctuations, or characteristics suggested by the aggregate paid activity. Conventional actuarial methods are not utilized to establish asbestos reserves, nor haveand the Company’s evaluations have not resulted in any way of determininga reliable method to determine a meaningful average asbestos defense or indemnity payment.The completion of these reviews and analyses in the third quarters of 2017 and 2016 resulted in a $225 million increase in the Company’s net asbestos reserves in each period. In both 2017 and 2016, the reserve increases were primarily driven by increases in the Company’s estimate of projected settlement and defense costs related to a broad number of policyholders in the Home Office category due to a higher than previously anticipated level of litigation activity surrounding mesothelioma claims. This increase in the estimate of projected settlement and defense costs resulted from payment trends that continue to be higher than previously anticipated due to the impact of the current litigation environment discussed above. Over the past decade, the property and casualty insurance industry, including the Company, has experienced net unfavorable prior year reserve development with regard to asbestos reserves, but the Company believes that over that period there has been a reduction in the volatility associated with the Company’s overall asbestos exposure as the overall asbestos environment has evolved from one dominated by exposure to significant litigation risks, particularly coverage disputes relating to policyholders in bankruptcy who were asserting that their claims were not subject to the aggregate limits contained in their policies, to an environment primarily driven by a frequency of litigation related to individuals with mesothelioma. The Company’s overall view of the current underlyingninesix months of 20172020 and 2019 were $193$108 million compared with $632and $102 million, in the same period of 2016. Net asbestos paid loss and loss expenses in the first nine months of 2016 included the gross settlement payment related to PPG of $518 million, $458 million net of reinsurance, as described above.respectively. Net asbestos reserves were $1.36$1.17 billion and $1.18 billion at SeptemberJune 30, 2017, compared with $1.40 billion at September2020 and June 30, 2016.(at and for the six months ended June 30, in millions) 2020 2019 Beginning reserves: Gross $ 1,601 $ 1,608 Ceded (322) (327) Net 1,279 1,281 Incurred losses and loss expenses: Gross — — Ceded — — Net — — Paid loss and loss expenses: Gross 129 134 Ceded (21) (32) Net 108 102 Foreign exchange and other: Gross (2) — Ceded — — Net (2) — Ending reserves: Gross 1,470 1,474 Ceded (301) (295) Net $ 1,169 $ 1,179 substances. Mostly, thesesubstances, frequently under policies issued prior to the mid-1980s. These claims are duemainly brought pursuant to various legislative as well as regulatory efforts aimed atstate or federal statutes that require a liable party to undertake or pay for environmental remediation. For instance, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), enacted in 1980 and later modified, 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 CERCLAthese statutes may be joint and several with other responsible parties. These decisions often pertain to insurance policies that were issued by the Company prior to the mid-1980s. These decisions continue to be inconsistent and vary from jurisdiction to jurisdiction. Environmental claims, when submitted, rarely indicate the monetary amount being sought by the claimant from the policyholder, and the Company does not keep track of the monetary amount being sought in those few claims which indicate a monetary amount.The resolution of environmental exposures by the Company generally occurs through settlements with policyholders as opposed to claimants. Generally, the Company strives to extinguish any obligations it may have under any policy issued to the policyholder for past, present and future environmental liabilities and extinguish any pending coverage litigation dispute with the policyholder. This form of settlement is commonly referred to as a “buy-back” of policies for future environmental liability. In addition, many of the agreements have also extinguished any insurance obligation which the Company may have for other claims, including but not limited to asbestos and other cumulative injury claims. The Company and itspolicyholders may also agree to settlements which extinguish any liability arising from known specified sites or claims. Where appropriate, these agreements also include indemnities and hold harmless provisions to protect the Company. The Company’s general purpose in executing these agreements is to reduce the Company’s potential environmental exposure and eliminate the risks presented by coverage litigation with the policyholder and related costs.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.In its review of environmental reserves, the Company considers: past settlement payments; changing judicial and legislative trends; its reserves for the costs of litigating environmental coverage matters; the potential for policyholders with smaller exposures to be named in new clean-up actions for both on- and off-site waste disposal activities; the potential for adverse development; the potential for additional new claims beyond previous expectations; and the potential higher costs for new settlements.The duration of the Company’s investigation and review of these claims and the extent of time necessary to determine an appropriate estimate, if any, of the value of the claim to the Company vary significantly and are dependent upon a number of factors. These factors include, but are not limited to, the cooperation of the policyholder in providing claim information, the pace of underlying litigation or claim processes, the pace of coverage litigation between the policyholder and the Company and the willingness of the policyholder and the Company to negotiate, if appropriate, a resolution of any dispute pertaining to these claims. Because these factors vary from claim-to-claim and policyholder-by-policyholder, the Company cannot provide a meaningful average of the duration of an environmental claim. However, based upon the Company’s experience in resolving these claims, the duration may vary from months to several years.The Company continues to receive notices from policyholders tendering claims for the first time, frequently under policies issued prior to the mid-1980s. These policyholders continue to present smaller exposures, have fewer sites and are lower tier defendants. 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. hasas well as the costs associated with coverage litigation on environmental matters have been greater than anticipated, driven by claims and legal developments in a limited number of jurisdictions. As a result of these factors, theThe Company increased its net environmental reserves by $65$17 million and $82$34 million in the second quartersquarter and first six months of 20172020, respectively, and 2016, respectively.ninesix months of 20172020 and 2019 were $60$24 million compared with $50and $35 million, in the same period of 2016. At Septemberrespectively. Net environmental reserves were $330 million and $359 million at June 30, 2017, approximately 94% of the net environmental reserve (approximately $364 million) was carried in a bulk reserve2020 and included unresolved environmental claims, incurred but not reported environmental claims and the anticipated cost of coverage litigation disputes relating to these claims. The bulk reserve the Company carries is established and adjusted based upon the aggregate volume of in-process environmental claims and the Company’s experience in resolving those claims. The balance, approximately 6% of the net environmental reserve (approximately $24 million), consists of case reserves.The following table displays activity for environmental losses and loss expenses and reserves:continuing uncertainties include, without limitation, the risks and lackemergence of predictability inherent in complex litigation, any impact from the bankruptcy protection sought by various asbestos producers and other asbestos defendants, a further increase or decrease in the cost to resolve, and/or thegreater number of asbestos andor environmental claims beyond that which is anticipated the emergence of a greater number of asbestos claims than anticipated as amay result of extended life expectancies resulting from medical advances and lifestyle improvements, the role of any umbrella or excess policies the Company has issued, the resolution or adjudication of disputes pertaining to the amount of available coverage for asbestos and environmental claims in a manner inconsistent with the Company’s previous assessment of these claims, the number and outcome of direct actions against the Company, future developments pertaining to the Company’s ability to recover reinsurance for asbestos and environmental claims and the unavailability of other insurance sources potentially available to policyholders, whether through exhaustion of policy limits or through the insolvency of other participating insurers. In addition, uncertainties arise from the insolvency or bankruptcy of policyholders and other defendants. It is also not possible to predict changes in the legal, regulatory and legislative environment and their impact on the future development of asbestos and environmental claims. This environment could be affected by changesadverse 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.SeptemberJune 30, 20172020 were $73.09$80.60 billion, of which 93%94% was invested in fixed maturity and short-term investments, 1% in equity securities, 1% in real estate investments and 5%4% in other investments. Because the primary purpose of the investment portfolio is to fund future claims payments, the Company employs a conservativethoughtful investment philosophy.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 U.S. municipal and taxable corporate and U.S. agency mortgage-backed bonds.SeptemberJune 30, 20172020 was $62.16$70.05 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 SeptemberJune 30, 20172020 and December 31, 2016.2019. Below investment grade securities represented 2.8% and 2.9%2.1% of the total fixed maturity investment portfolio at Septemberboth June 30, 20172020 and December 31, 2016, respectively.2019. The weighted average effective duration of fixed maturities and short-term securities was 4.2 (4.53.8 (4.1 excluding short-term securities) at both SeptemberJune 30, 20172020 and 4.0 (4.3 excluding short-term securities) at December 31, 2016.SeptemberJune 30, 20172020 and December 31, 20162019 included $31.18$32.07 billion and $31.91$29.92 billion, respectively, of securities which are obligations of 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 SeptemberJune 30, 20172020 and December 31, 20162019 were $3.83$2.46 billion and $5.16$2.06 billion, respectively, of pre-refunded bonds, which are bonds for which states or municipalities have established irrevocable trusts, almost exclusively comprised of U.S. Treasury securities and obligations of U.S. government and government agencies and authorities. These trusts were created to fund the payment of principal and interest due under the bonds. 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 been pre-refunded and therefore are defeased by U.S. Treasury securities.While its municipal bond portfolio includes a number of securities that were enhanced by third-party insurance for the payment of principal and interest in the event of an issuer default, the Company does not rely on enhanced credit characteristics provided by such third-party insurance as part of its investing decisions. Of the insured municipal securities in the Company’s investment portfolio at September 30, 2017, approximately 99% were rated at “A3” or above, and approximately 97% were rated at “Aa3” or above, without the benefit of insurance. The Company believes that a loss of the benefit of insurance would not result in a material adverse impact on the Company’s results of operations, financial position or liquidity, due to the underlying credit strength of the issuers of the securities, as well as the Company’s ability and intent to hold the securities. Theweighted average credit rating of the underlying issuers of these securities was “Aa2” at September 30, 2017. The average credit rating of the entire municipal bond portfolio was “Aa1”"Aaa/Aa1" at Septemberboth June 30, 2017, with2020 and without the enhancement provided by third-party insurance.SeptemberJune 30, 20172020 and December 31, 20162019 included $2.17$3.08 billion and $1.71$3.28 billion, respectively, of residential mortgage-backed securities, which include 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 interestSeptemberJune 30, 20172020 and December 31, 20162019 were $775 million$1.51 billion and $563 million,$1.52 billion, 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 $1.40$1.57 billion and $1.15$1.76 billion at SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively. Approximately 53%57% and 51%54% of the Company’s CMO holdings at SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively, were guaranteed by or fully collateralized by securities issued by GNMA, FNMA or FHLMC. The weighted average credit rating of the $661$676 million and $566$816 million of non-guaranteed CMO holdings was “A2” at Septemberboth June 30, 20172020 and “Baa2” at December 31, 2016.2019 was "Aaa/Aa1." The weighted average credit rating of all of the above securities was “Aa1”"Aaa/Aa1" at Septemberboth June 30, 20172020 and “Aa2” at December 31, 2016.2019. For further discussion regarding the Company’s investments in residential CMOs, see “Part II—II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Investment Portfolio” in the Company’s 20162019 Annual Report as updated by the Company’s Current Report on Form 8-K filed on June 20, 2017. Available for Sale, Real Estate and Short-Term Investments20162019 Annual Report as updated by the Company’s Current Report on Form 8-K filed on June 20, 2017 for further information about these invested asset classes.limited partnerships, hedge fundsfund and real estate partnerships, and joint ventures. Also included in other investments are non-public common and preferred equities and derivatives. These asset classes have historically provided a higher return than fixed maturities but are subject to more volatility. At SeptemberJune 30, 20172020 and December 31, 2016,2019, the carrying value of the Company’s other investments was $3.55$3.11 billion and $3.45$3.42 billion, respectively.ThereCompany’sCompany's catastrophe reinsurance coverage during the quarter ended September 30, 2017. The Company’s normal renewals and changes to its catastrophe reinsurance occur in January and July each year. The changes effective in January are discussedfrom that reported in the “Catastrophe Reinsurance” sectionCompany's 2019 Annual Report.“Part I — Item 1 — Business”the layer within a predetermined range. For the period from May 25, 2020 through and including May 24, 2021, the Company will be entitled to begin recovering amounts under this reinsurance agreement if the covered losses in the Company’s 2016 Annual Reportcovered area for a single occurrence reach an initial attachment amount of $1.872 billion. The full $500 million coverage amount is available until such covered losses reach a maximum $2.372 billion.updatedfollows:Current Report on Form 8-K filed onCanadian businesses for the period July 1, 2020 through and including June 20, 2017, and the changes effective in July are discussed in the “Catastrophe Reinsurance Coverage” section of “Part I — Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” in30, 2021. The treaty covers all property written by the Company’s Quarterly Report on Form 10-QCanadian businesses, including, but not limited to, habitational property, commercial property, inland marine, ocean marine and auto physical damages exposures. Coverage for the quarter ended June 30, 2017.“Part“Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reinsurance Recoverables” in the Company’s 20162019 Annual Report as updated by the Company’s Current Report on Form 8-K filed on June 20, 2017.
2017
2016The $160 million increase in net(in millions) June 30, 2020 December 31, 2019 Gross reinsurance recoverables on paid and unpaid claims and claim adjustment expenses $ 3,404 $ 3,476 Gross structured settlements 2,940 2,965 Mandatory pools and associations 1,905 1,886 Gross reinsurance recoverables 8,249 8,327 Allowance for estimated uncollectible reinsurance (156) (92) Net reinsurance recoverables $ 8,093 $ 8,235 overat June 30, 2020 decreased by $142 million from December 31, 20162019, primarily reflected the impacts of catastrophe losses and the asbestos reserve increase in the third quarter of 2017, partially offset byreflecting cash collections in the first ninesix months of 2017, including2020 and the settlement$53 million increase in the allowance for estimated uncollectible reinsurance from the cumulative effect of certain disputes as discussed in more detail in note 13adoption of notes to the unaudited consolidated financial statements.lifeterm 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. Property and casualty insurance market conditions are expected to remain competitive. 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,will remainhave remained strong by historical standards duringin recent periods; however, retention levels, particularly in the remaindernear term, may be impacted by COVID-19 and related economic conditions. For example, retention may improve due to lower levels of 2017business being marketed as a result of operational disruptions impacting businesses. On the other hand, business failures or customers choosing not to renew coverages due to financial distress would result in lapses of policies and into 2018.lower levels of retention. In Business Insurance,addition, as risk profiles of insureds change, the Company expects that domestic renewal premium changes during the remainder of 2017 and into 2018 will remain positive and will be higher than the levels attained in the first nine months of 2017. In Bond & Specialty Insurance, the Company expects that renewal premium changes with respectmay determine to domestic management liability business during the remainder of 2017 and into 2018 will remain positive, but will be slightly lower than the levels attained in the first nine months of 2017. With respect to domestic surety business within Bond & Specialty Insurance, the Company expects that net written premium volume during the remainder of 2017 and into 2018 will be slightly higher than the level attained in the same periods of 2016 and 2017. In Personal Insurance, the Company expects that domestic Agency Auto renewal premium changes during the remainder of 2017 and into 2018 will remain positive and will be higher than the levels attained in the first nine months of 2017, and domestic Agency Homeowners and Other renewal premium changes during the remainder of 2017 and into 2018 will remain positive and will be slightly higher than the levels attained in the first nine months of 2017. The need for state regulatory approval for changes to personal property and casualty insurance prices, as well as competitive market conditions, may impact the timing and extent of renewal premium changes. Given the relatively smaller amount of premium that the Company generates from outside the United States and the transactional nature of some of those markets, particularly Lloyd’s, international renewal premium changes in each segment during the remainder of 2017 and into 2018 could be somewhat higher, broadly consistent with or somewhat lower than the levels attained in the first nine months of 2017.2017 and into 20182020 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.Economic conditions In periods of meaningful decreases in new business, despite its negative impact on underwriting gains over time, the United States and elsewhere could deteriorate, due toimpact of lower new business levels may positively impact the combined ratio for a varietyperiod of factors, including the political and regulatory environment, the U.S. Federal budget and potential changes in tax laws in the United States, the repeal, replacement or modification of the Affordable Care Act, the United Kingdom’s withdrawal from the European Union, rapid changes in commodity prices and fluctuations in interest rates and foreign currency exchange rates. The resulting lower levels of economic activity could impact exposure changes at renewal and the Company’s ability to write business at acceptable rates. Additionally, lower levels of economic activity could adversely impact audit premium adjustments, policy endorsements and mid-term cancellations after policies are written. All of the foregoing, in turn, could adversely impact net written premiums during the remainder of 2017 and into 2018, and because earned premiums are a function of net written premiums, earned premiums could be adversely impacted on a lagging basis.Loss. 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. Theexpects to incur significanthas experienced approximately 40% of its annual catastrophe losses during the second quarter, primarily arising out of severe wind and hail storms, including tornadoes. Hurricanes, wildfires and winter storms tend to happen at other times of the year and can also have a material impact on the Company's results of operations. Catastrophe losses incurred in a particular quarter in any given year may differ materially from historical experience. In addition, most of the fourth quarterCompany's reinsurance programs renew on January 1 or July 1 of 2017 resulting from recent wildfires in California.For a numbereach year, and, therefore, any changes to the cost or coverage terms of years,such programs will be effective after such dates.development in future periods.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.legal,legal/tort, regulatory and economic environments in which the Company operates, our financial results could be materially and adversely affected,”affected” in the Company’s 2019 Annual Report.“Changestherefore the Company’s results of operations may be impacted by a variety of other factors as well, many of which could be exacerbated by COVID-19, such as a recession, financial market turmoil, supply chain disruptions, extraordinary monetary and fiscal policy measures, fluctuations in interest rates and foreign currency exchange rates, changes in tariffs or other international trade regulations, the United Kingdom’s withdrawal from the European Union, the political and regulatory environment, changes to the U.S. Federal budget and further potential changes in tax laws or health care legislation in the tax laws of other jurisdictions in which we operate could adversely impact us” in the Company’s 2016 Annual Report.In Business Insurance, the Company expects underlying underwriting margins and the underlying combined ratio during the remainder of 2017 and into 2018 will be broadly consistent with those in the same periods of 2016 and 2017, reflecting the modest impact of loss trends in excess of earned pricing offset by more normalized levels of non-catastrophe weather-related losses and other loss activity.In Bond & Specialty Insurance, the Company expects underlying underwriting margins and the underlying combined ratio during the remainder of 2017 and into 2018 will be broadly consistent with those in the same periods of 2016 and 2017.In Personal Insurance, the Company expects underlying underwriting margins during the remainder of 2017 will be higher than in the same period of 2016, and the underlying combined ratio during the remainder of 2017 will be lower than in the same period of 2016. The Company expects underlying underwriting margins into 2018 will be higher than in the same periods of 2017, and the underlying combined ratio will be slightly lower than in the same periods of 2017. In Agency Automobile, the Company expects that underlying underwriting margins and the underlying combined ratio will improve during the remainder of 2017 and into 2018 compared with the same periods of 2016 and 2017, reflecting actions taken to improve profitability, as well as the timing impact of higher loss trends for bodily injury liability coverages that were recognized in the latter part of 2016. In Agency Homeowners and Other, the Company expects that underlying underwriting margins and the underlying combined ratio will be broadly consistent during the remainder of 2017 and into 2018 with the same periods of 2016 and 2017, assuming a continuation of normalized levels of non-catastrophe weather-related losses and other loss activity.Portfolio.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 4.2 (4.53.8 (4.1 excluding short-term securities) at SeptemberJune 30, 2017.2020. 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 SeptemberJune 30, 2017,2020, the Company had $400 million notional value ofno open U.S. Treasury futures contracts. The Company continually 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 U.S. municipal and taxable corporate and U.S. agency mortgage-backed bonds.limited partnerships, hedge funds,fund and real estate partnerships, and joint ventures. These investment classes have the potential for higher returns but also the potential for higher degrees of risk, including less stable rates of return and less liquidity.current interest rate environment, which remains very low by historical standards, the Company estimates that the impact of expected lower reinvestment yields on fixed maturityincome investments, partially offset by the impact ofour current expectations for slightly higher levels of fixed maturities and higher short-term investment yields, is expected, duringincome investments, the remainder of 2017 and into 2018, to result in a $10 million or less decline inCompany expects that after-tax net investment income from those portfoliosthat portfolio will be approximately $35 million to $40 million lower on a quarterly basis for the remainder of 2020 as compared to the corresponding quarters of 2016 and 2017. The2019. This expectation could be impacted by further disruptions in global financial markets associated with the continuing impact of future market conditions onCOVID-19. 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, the loss in the non-fixed income investment portfolio in the second quarter of 2020 is related to the disruption in global financial markets during the first quarter of 2020 associated with COVID-19. Similarly, any impact from favorable changes in global financial markets in the second quarter of 2020 should be reflected in the Company's results for subsequent periods. Further changes in global financial markets could impact the Company’s net investment income in future periods from theits non-fixed maturityincome investment portfolio, during the remainder of 2017 and into 2018 is hard to predict. If general economic conditions and/positively or investment market conditions deteriorate during the remainder of 2017 and into 2018, thenegatively.could experience a reduction inhad net investment income and/or significantpre-tax realized investment losses including impairments.$1.43$4.63 billion ($931 million3.64 billion after-tax) in its fixed maturity investment portfolio at SeptemberJune 30, 2017.2020. While the Company does not attempt to predict future interest rate movements, a rising interest rate environment would reduce the market value of fixed maturity investments and, therefore, reduce shareholders’ equity, and a declining interest rate environment would have the opposite effects. Additionally, further disruptions in global financial markets associated with the continuing impact of COVID-19 could also impact the market value of the Company’s investment portfolio. The Company’sCompany'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’sCompany's investment portfolio. See “Changes"Changes in U.S. tax laws or in the tax laws of other jurisdictions in which we operate could adversely impact us” us" included in “Part I—Item 1A—Risk Factors” in the Company’s 20162019 Annual Report.In the first nine months of 2017, the Company had net pre-tax realized investment gains of $146 million, which were primarily driven by gains on sales of equity securities. At September 30, 2017, the carrying value of the Company’s equity securities was $601 million, which included $92 million of net pre-tax unrealized gains. During the remainder of 2017, the Company may realize additional gains through the sales of equity securities.“Investment Portfolio” herein.“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“Our“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 20162019 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 also subject to a number of additional risks associated with our business outside the United States” included in “Part I—Item 1A—Risk Factors” in the Company’s 20162019 Annual Report and see “Part II—Item 7A—Quantitative and Qualitative Disclosures About Market Risk—ForeignRisk-Foreign Currency Exchange Rate Risk” in the Company’s 20162019 Annual Report.shareholders.shareholders, subject to the considerations described below, including the impact of COVID-19 and related economic conditions. The Company expects that, generally over time, the combination of dividends to common shareholders and common share repurchases will likely not exceed net income. In addition,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 commensurate with the Company’s desired ratings from independent rating agencies, 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 and other factors. Given the continuing impact of the economic and other uncertainties associated with COVID-19 on the foregoing factors, the Company may continue to reduce or eliminate its share repurchase activity at least in the near term. For information regarding the Company’s common share repurchases in 2017,2020, see “Liquidity and Capital Resources.”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 Brazil, the Company’s capital is also subject to the effects of changes in foreign currency exchange rates. For example, strengthening of the U.S. dollar in comparison to other currencies could result in a reduction of 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 2016 Annual Report.20162019 Annual Report, and “Critical Accounting Estimates.”20162019 Annual Report as updated by the Company’s Current Report on Form 8-K filed on June 20, 2017.SeptemberJune 30, 2017,2020, TRV held total cash and short-term invested assets in the United States aggregating $1.96$2.02 billion and having a weighted average maturity of 7654 days. TRV has established a holding company liquidity target equal to its estimated annual pre-tax interest expense and common shareholder dividends (currently approximately $1.1$1.20 billion). TRV’s holding company liquidity of $1.96$2.02 billion at September2017, which included net proceeds from the issuance of senior notes in the second quarter of 2017 described below,2020 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.U.S. income taxes have not been recognized on substantially allThe undistributed earnings of the Company’s foreign operations’ undistributed earnings as of September 30, 2017, as such earningsoperations are intended to be permanently reinvested in those operations. Furthermore, taxes paid to foreign governments on these earnings may be used as credits against the U.S. tax on dividend distributions if such earnings were to be distributed to the holding company. The amount of undistributed earnings from foreign operations, and related taxes on those undistributedsuch earnings were not material to the Company’s financial position or liquidity at SeptemberJune 30, 2017.17, 201910, 2022 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 7, 2018. This line of credit also supports TRV’s $800 million commercial paper program.4, 2023. At SeptemberJune 30, 2017,2020, the Company had no$100 million of commercial paper outstanding. TRV is not reliant on its commercial paper program to meet its operating cash flow needs.$246$312 million to provide a portion of the capital needed to support its obligations at Lloyd’s at SeptemberJune 30, 2017.2020. 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.On August 4, 2017, the Company completed its previously announced acquisition of all issued and outstanding shares of Simply Business Holdings LTD (Simply Business), a leading provider of small business insurance policies in the United Kingdom, for a purchase price of approximately $464 million, which included the repayment of debt and other obligations of Simply Business. In addition, the Company issued 95,953 shares of restricted common stock valued at approximately $12 million to certain employees of Simply Business who were equity holders of Simply Business. The Company used a portion of the net proceeds from the issuance of senior notes in May 2017 (described in more detail in note 8 of notes to the unaudited consolidated financial statements) and internal resources to fund this transaction.On December 15, 2017, the Company’s $450 million, 5.75% senior notes will mature. The Company will use a portion of the proceeds from the issuance of senior notes in May 2017 (described in more detail in note 8 of notes to the unaudited consolidated financial statements) to fund this maturity. flows provided by operating activities in the first ninesix months of 20172020 and 2016 were $3.222019 was $2.29 billion and $3.06$1.79 billion, respectively. CashThe increase in cash flows in the first ninesix months of 20162020 primarily reflected the impacts of lower levels of payments for claims and claim adjustment expenses, partially offset by lower levels of cash received for premiums. The lower levels of payments for claims and claim adjustment expenses reflected the impacts of COVID-19 and related economic conditions, such as lower loss payments in the automobile product line due to a decrease in miles driven and reduced claim settlement activity largely due to the disruptions in the judicial system, partially offset by the impact of payments related to higher catastrophe losses in the first six months of 2020. The lower levels of cash received for premiums included the Company’s $524 million paymentimpact of premium refunds provided in the second quarter of 20162020 to personal automobile customers in response to COVID-19 and related to the settlement of the PPG Industries, Inc. litigation as described in more detail in the “Asbestos Claims and Litigation” section herein.flows used inby investing activities in the first ninesix months of 20172020 and 2016 were $2.122019 was $1.81 billion and $1.13 billion,$701 million, respectively. The Company’s consolidated total investments at SeptemberJune 30, 20172020 increased by $2.60$2.72 billion, or 4%3% over year-end 2016,2019, primarily reflecting the impactsimpact of (i) an increase in net unrealized gains on investments at June 30, 2020 as compared with December 31, 2019, primarily due to the impact of lower interest rates during the first six months of 2020, as well as (ii) net cash flows provided by operating activities, partially offset by (iii) net cash used in financing activities.an increaseemployee stock option exercises. The total in the unrealized appreciation of investments, partially offset by2019 reflected common share repurchases, the payment of debt and dividends paid to shareholders, the repayment of debt and the cost of acquiring Simply Business.Financing ActivitiesNet cash flows used in financing activities in the first nine months of 2017 and 2016 were $1.05 billion and $2.04 billion, respectively. The totals in both periods primarily reflected common share repurchases, dividends paid to shareholders and the payment of debt, partially offset by the net proceeds from the issuance of debt and the proceeds from employee stock option exercises. Common share repurchases in the first ninesix months of 20172020 and 20162019 were $1.09 billion$471 million and $1.72 billion,$797 million, respectively.$589$426 million and $569$419 million in the first ninesix months of 20172020 and 2016,2019, respectively. The declaration and payment of future dividends to holders of the Company’s common stock will be at the discretion of the Company’s Board of Directors and will depend upon many factors, including the Company’s financial position, earnings, capital requirements of the Company’s operating subsidiaries, legal requirements, regulatory constraints and other factors as the Board of Directors deems relevant. Dividends will be paid by the Company only if declared by its Board of Directors out of funds legally available, subject to any other restrictions that may be applicable to the Company. On October 19, 2017,July 23, 2020, the Company announced that it declared a regular quarterly dividend of $0.72$0.85 per share, payable December 29, 2017September 30, 2020 to shareholders of record on December 11, 2017.Repurchase AuthorizationRepurchases. 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 most recent authorization was approved by the Board of Directors in April 2017 and added $5.0 billion of repurchase capacity to the $709 million capacity remaining at that 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 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 factors, including the Company’s financial position, earnings, share price, catastrophe losses, maintaining capital levels commensurate with the Company’s desired ratings from independent rating agencies, 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 and other factors. During the three months and nineended June 30, 2020, the Company did not repurchase any shares under its share repurchase authorization. During the six months ended SeptemberJune 30, 2017,2020, the Company repurchased 2.63.5 million and 8.3 million shares respectively, under its share repurchase authorization for a total cost of $328 million and $1.03 billion, respectively.$425 million. The average cost per share repurchased was $128.11$123.09. Given the continuing impact of the economic and $124.12, respectively. In April 2017,other uncertainties associated with COVID-19 on the Board of Directors approved aforegoing factors, the Company may continue to reduce or eliminate its share repurchase authorization that added an additional $5.0 billion of repurchase capacity.activity at least in the near term. At SeptemberJune 30, 2017,2020, the Company had $4.91$1.36 billion of capacity remaining under the share repurchase authorization.SeptemberJune 30, 20172020 and December 31, 2016.
2017
2016(in millions) June 30,
2020December 31,
2019Debt: Short-term $ 600 $ 600 Long-term 6,504 6,004 Net unamortized fair value adjustments and debt issuance costs (55) (46) Total debt 7,049 6,558 Shareholders’ equity: Common stock and retained earnings, less treasury stock 25,061 25,303 Accumulated other comprehensive income 1,882 640 Total shareholders’ equity 26,943 25,943 Total capitalization $ 33,992 $ 32,501 May 22, 2017,April 27, 2020, the Company issued $700$500 million aggregate principal amount of 4.00%2.55% senior notes that will mature on May 30, 2047.April 27, 2050. The Company intends to use the net proceeds to repay the $500 million aggregate principal amount of the Company's 3.90% senior notes that will mature on November 1, 2020. See note 89 of notes to the unaudited consolidated financial statements for further discussion regarding the terms of the senior notes. On June 2, 2017, the Company redeemed the remaining $107 million aggregate principal amount of its 6.25% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067 at a price per debenture of 100% of the principal amount thereof, plus accrued and unpaid interest to the redemption date.investments.
2017
2016(dollars in millions) June 30,
2020December 31,
2019Total capitalization $ 33,992 $ 32,501 Less: net unrealized gains on investments, net of taxes, included in shareholders' equity 3,646 2,246 Total capitalization excluding net unrealized gains on investments, net of taxes, included in shareholders' equity $ 30,346 $ 30,255 Debt-to-total capital ratio 20.7 % 20.2 % Debt-to-total capital ratio excluding net unrealized gains on investments, net of taxes, included in shareholders' equity 23.2 % 21.7 % taxes.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 (excludingexcluding after-tax net unrealized investment gains)gains included in shareholders’ equity of 23.3%23.2% at SeptemberJune 30, 20172020 was within the Company’s target range of 15% to 25%.actions wereaction was taken with respect to the Company since July 20, 2017,April 21, 2020, the date on which the Company’sCompany's Form 10-Q for the quarter ended June 30, 2017March 31, 2020 was filed with the SEC. For additional discussion of ratings, see “Part I—Item 1—Business—Ratings” in the Company’s 20162019 Annual Report as updated by the Company’s Current Report on Form 8-K filed on June 20, 2017.·Report.October 5, 2017, A.M. BestMay 12, 2020, Fitch affirmed all ratings of the Company, except ratings for Travelers Insurance Company Limited, which were affirmed on December 23, 2016.Company. The outlook for all ratings is stable.“Part“Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in the Company’s 20162019 Annual Report as updated by the Company’s Current Report on Form 8-K filed on June 20, 2017.Report. The Company considers its most significant accounting estimates to be those applied to claims and claim adjustment expense reserves and related reinsurance recoverables, investment valuation and impairments, and goodwill and other intangible assets impairments. Except as shown in the table below, there have been no material changes to the Company’s critical accounting estimates since December 31, 2016.$2.03$1.83 billion at SeptemberJune 30, 2017)2020) 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 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. June 30, 2020 December 31, 2019 (in millions) Case IBNR Total Case IBNR Total General liability $ 5,033 $ 7,695 $ 12,728 $ 4,898 $ 7,451 $ 12,349 Commercial property 1,072 467 1,539 1,035 312 1,347 Commercial multi-peril 2,193 2,320 4,513 2,148 2,065 4,213 Commercial automobile 2,518 2,091 4,609 2,533 1,872 4,405 Workers’ compensation 10,190 9,455 19,645 10,233 9,279 19,512 Fidelity and surety 210 303 513 261 259 520 Personal automobile 1,895 1,527 3,422 2,019 1,509 3,528 Homeowners and personal other 813 1,106 1,919 838 871 1,709 International and other 2,395 1,814 4,209 2,620 1,633 4,253 Property-casualty 26,319 26,778 53,097 26,585 25,251 51,836 Accident and health 12 — 12 13 — 13 Claims and claim adjustment expense reserves $ 26,331 $ 26,778 $ 53,109 $ 26,598 $ 25,251 $ 51,849 $1.80$1.26 billion increase in gross claims and claim adjustment expense reserves since December 31, 20162019 primarily reflected the impacts of (i) catastrophe losses incurred in the third quarterfirst six months of 2017 and2020, (ii) higher volumes of insured exposures and loss cost trends for the current accident year partially offset byand (iii) reduced claim settlement activity largely due to the impacts of (iii) paymentsdisruptions in the judicial system related to operations in runoff and (iv) net favorable prior year reserve development.20162019 Annual Report as updated by the Company’s Current Report on Form 8-K filed on June 20, 2017 for a discussion of recently issued accounting pronouncements.·······losses (including recent California wildfires);·losses; potential changes in tax law, and rapid changes in commodity prices as well asand fluctuations in foreign currency exchange rates) and underwriting market conditions;· and·Company’s acquisitionUnited States or other nations, including tariffs or other barriers to international trade; andSimply Business.·those discussed above,as a result of factors such as increased concentrations of insured exposures in catastrophe-prone areas, could materially and adversely affect the Company’s results of operations, its financial position and/or liquidity, and could adversely impact the Company’s ratings, the Company’s ability to raise capital and the availability and cost of reinsurance;·legal,legal/tort, regulatory and economic environments in which the Company operates or the impacts of COVID-19, the Company’s financial results could be materially and adversely affected;·· suffer material realized or unrealized losses. The Company’s investment portfolio may also suffer reduced or low returns or material realized or unrealized losses, particularly if interest rates remain at historically low levels for a prolonged period of time or decline further as a result of actions taken by central banks (a risk which potentially could be increased by, among other things,in the United Kingdom’s withdrawal from the European Union);· the Company’s business could be harmed because of its potential exposure to asbestos and environmental claims and related litigation;·current environment;the Companyit operates, could harm its ability to maintain or increase its business volumes and its profitability;···uncertain;·uncertain, and court decisions or legislative or regulatory changes that take place after the Company issues its policies· also 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;·parties, which risk is heightened in the current environment;···or expand in targeted markets or improve business processes and workflows may not be successful and may create enhanced risks;··technology;·technology, particularly as its business processes become more digital;impacted;· changes in U.S. tax laws orimpacted. This risk is heightened in the tax lawscurrent environment where a majority of other jurisdictions in which the Company operates could adversely impact the Company;·Company's employees have shifted to a work from home arrangement;includingsuch as foreign currency exchange fluctuations (including with respect to the valuation of the Company's foreign investments and interests in joint ventures) and restrictive regulations as well as the risks and uncertainties associated with the United Kingdom’sKingdom's withdrawal from the European Union;········to existingin U.S. accounting standards maytax laws or in the tax laws of other jurisdictions where the Company operates could adversely impact the Company’s reported results;Company; and·factors.I—II—Item 1A—Risk Factors” in the Company’s 2016 Annual Report filed with the SEC and “Management’s“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” herein and in the Company’s 20162019 Annual Report, in each case as updated by the Company’s Current Report on Form 8-K filed on June 20, 2017.Travelers.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 "For Investors" heading at http://investor.travelers.com.II—II—Item 7A—Quantitative and Qualitative Disclosures About Market Risk” in the Company’s 20162019 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 20162019 Annual Report.SeptemberJune 30, 2017. Consistent with guidance issued by the SEC that an assessment of internal controls over financial reporting of a recently acquired business may be omitted from management’s evaluation of disclosure controls and procedures, management is excluding an assessment of such internal controls for Simply Business from its evaluation of the effectiveness of the Company’s disclosure controls and procedures. The Company acquired all of the issued and outstanding shares of Simply Business on August 4, 2017. Simply Business represented less than 1% of the Company’s consolidated total assets, consolidated total revenues and net income as of and for the quarter ended September 30, 2017.2020. Based upon that evaluation, and subject to the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of SeptemberJune 30, 2017,2020, 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,waswere no changechanges in the Company’sCompany's internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended SeptemberJune 30, 20172020 that hashave materially affected, or isare reasonably likely to materially affect, the Company’sCompany's internal control over financial reporting. The Company is inManagement reviewed and tested the processeffectiveness of reviewing the internal control structure of Simply Business and, if necessary, will make appropriate changes as it integrates Simply Business into the Company’s overall internal controlcontrols over financial reporting process.1314 of notes to the unaudited consolidated financial statements contained in this quarterly report and is incorporated by reference into this Item 1.I—I—Item 1A—Risk Factors” in the Company’s 2016 Annual Report filed with the SEC. In addition, please see “Management’sand “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook” herein and “—Critical Accounting Estimates” herein andOperations” in the Company’s 20162019 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 Current Report on Form 8-K filed on June 20, 2017. ThereCompany's periodic filings with the SEC. Other than as described below, there have been no material changes to the risk factors disclosed in Part I—Item 1A of the Company’s 20162019 Annual Report.On August 4, 2017, as partial consideration for the acquisition of Simply Business, the Company issued 95,953 shares of restricted common stock to certain employees of Simply Business who were equity holders of Simply Business. These shares were issued without registration under the Securities Act of 1933, as amended, in reliance upon the issuer safe harbor provided by Regulation S for an offshore sale.
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(in millions)April 1, 2020 April 30, 2020 — $ — — $ 1,361 May 1, 2020 May 31, 2020 368 $ 89.08 — $ 1,361 June 1, 2020 June 30, 2020 — $ — — $ 1,361 Total 368 $ 89.08 — $ 1,361 In April 2017,Given the Boardcontinuing impact of Directors approved athe economic and other uncertainties associated with COVID-19 on the foregoing factors, the Company may continue to reduce or eliminate its share repurchase activity at least in the near term.that added an additional $5.0 billion of repurchase capacity.964368 shares for a total cost of approximately $0.1 million$33,000 during the three months ended SeptemberJune 30, 20172020 that were not part of the publicly announced share repurchase authorization. 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.Analysis — Analysis—Additional Compensation Information—Stock Ownership Guidelines, Anti-Hedging and Pledging Policies, and Other Trading Restrictions” in the Company’s proxyMarch 31, 2017.April 3, 2020 (Proxy Statement). 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. The Company does not undertake any obligation to report Rule 10b5-1 plans that may be adopted by any employee or director of the Company in the future, or to report any modifications or termination of any publicly announced plan. As of the date of this report, none of the Company’s namedCompany's "named executive officersofficers" (i.e., an executive officer namedincluded in the compensation disclosures in the Company’sCompany's most recent proxy statement filed with the SEC) haveProxy Statement) has entered into a Rule 10b5-1 trading plan that remains in effect. See “Compensation Discussion and Analysis — Stock Ownership Guidelines, Anti-Hedging and Pledging Policies, and Other Trading Restrictions” in the Company’s proxy statement filed with the SEC on March 31, 2017.Exhibit Number 12.1† financial information from The Travelers Companies, Inc.’s Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 20172020 formatted in Inline XBRL: (i) Consolidated Statement of Income for the three months and ninesix months ended SeptemberJune 30, 20172020 and 2016;2019; (ii) Consolidated Statement of Comprehensive Income for the three months and ninesix months ended SeptemberJune 30, 20172020 and 2016;2019; (iii) Consolidated Balance Sheet at SeptemberJune 30, 20172020 and December 31, 2016;2019; (iv) Consolidated Statement of Changes in Shareholders’ Equity for the ninethree months and six months ended SeptemberJune 30, 20172020 and 2016;2019; (v) Consolidated Statement of Cash Flows for the ninesix months ended SeptemberJune 30, 20172020 and 2016; and2019; (vi) Notes to Consolidated Financial Statements.104.1 Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101.1).
_________________________________________________________other thanexcept 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 maydo not describe the actual state of affairsapply in any other context or at any time other than the date they were made or at any other time.THE TRAVELERS COMPANIES, INC. (Registrant) October 19, 2017KENNETH F. SPENCE IIIKenneth F. Spence III
Christine K. Kalla
Executive Vice President and General Counsel
(Authorized Signatory)October 19, 2017
(Principal Accounting Officer)