Financial
Performance

At Travelers, our mission for creating shareholder value is to deliver superior core return on equity by leveraging our meaningful and sustainable competitive advantages; generating top‑tier earnings and capital substantially in excess of our growth needs; and thoughtfully rightsizing capital and growing book value per share over time. Executing this financial strategy has produced industry‑leading returns over time, and 2018 was no exception.

2018 RESULTS
2018 Results

Despite another year of historically high catastrophe losses, we generated $2.5 billion of net income, or $9.28 per diluted share, an increase of 23% compared to the prior year. Core income was $2.4 billion, and core return on equity was 10.7%, a meaningful spread over the 10-year Treasury and our cost of equity. Our earnings and strong balance sheet enabled us to grow adjusted book value per share by 5%, after continuing to make important investments in our business and returning more than $2.1 billion of excess capital to our shareholders through dividends and share repurchases. Strong net cash flow from operations of $4.4 billion also enabled us to add $1.3 billion to our investment portfolio.

Particularly in light of the severe catastrophe losses, we were pleased with our underwriting profit, as evidenced by our consolidated combined ratio of 96.9%. Our after-tax underlying underwriting gain of $1.5 billion — the highest in more than a decade — and strong after-tax net investment income of $2.1 billion both made important contributions to the bottom-line result.

Underlying underwriting Gain (in billions, after-tax)1


1
Excludes the impact of catastrophes and prior year reserve development.

We produced a strong underlying underwriting gain thanks to continued underwriting excellence and also by leveraging our ongoing strategic initiatives to create attractive top-line opportunities and improve productivity and efficiency. Our success is evidenced by record net earned premiums, up 5% over the prior year, and a solid underlying combined ratio of 92.5%. Our 2018 results also benefited from a lower corporate tax rate.

During the year, we improved our expense ratio to 30.1%, a 60-basis-point improvement over the prior year, and down 140 basis points from 2016. This past year’s expense ratio is as good as we have seen in a long time. Achieving further productivity and efficiency gains continues to be a strategic priority for us. Importantly, improved operating leverage will give us the flexibility to invest further in our strategic priorities, let the benefit fall to the bottom line and/or be more competitive on pricing without compromising our return objectives.

Today’s production generates tomorrow’s earned premiums, and we have made strategic investments over a number of years to position Travelers for a strong, profitable top line. These actions and the disciplined execution of our marketplace strategies were again successful in 2018. We retained our best business at historically high levels, addressed profitability where needed through pricing gains and improved terms and conditions, and created opportunities to write new business. As a result, we grew net written premiums by 6% during 2018 to a record $27.7 billion.

Across all our businesses, our strategic focus continues to include creating opportunities to write more business through retaining and growing our relationships with our high-quality in-force accounts and bringing our franchise value to new customers. As we have done successfully over the past few years, we will continue to seek to grow without compromising our return objectives or changing our risk profile, primarily by targeting customers, industries, products and geographies that we know well. In terms of geography, we believe that geopolitical risk and economic instability around the world are underappreciated today, and so we like our North America concentration. That is not to say that we do not continue to recognize value and evaluate opportunities outside of North America, but we have set an even higher bar for them today. 

A review of last year’s results would not be complete without acknowledging our catastrophe claim response, which once again was excellent. For starters, our Claim professionals bring great expertise and compassion to their work. On top of that, our highly sophisticated claim model enables us to handle virtually 100% of our claims under nearly any foreseeable circumstances without resorting to third-party claim handlers, which produces a better experience for our customers and a more efficient outcome for us. As a result, we were able to resolve approximately 95% of our customers’ claims arising out of the largest catastrophes within 30 days. Our claims handling ability is at the heart of our promise to our customers and proved again in 2018 to be a significant competitive advantage.

Consistent and Successful Long-Term Financial Strategy Delivers Shareholder Value

These strong results demonstrate the continued successful execution of our long-term financial strategy. At Travelers, our simple and unwavering mission for creating shareholder value is to:

  • Deliver superior return on equity by leveraging our competitive advantages;
  • Generate earnings and capital substantially in excess of our growth needs; and
  • Thoughtfully rightsize capital and grow book value per share over time.

We have been clear for many years that one of our crucial responsibilities is to produce an appropriate return on equity for our shareholders. Our 2018 return on equity of 11.0% and core return on equity of 10.7% meaningfully exceeded the average return on equity for the domestic property and casualty industry, which was approximately 5.2% in 2018, according to estimates from the Insurance Information Institute. As shown in the accompanying chart, our return on equity has significantly outperformed the average return on equity for the industry in each of the past 10 years.

Return on Equity


1
Average GAAP return on equity from Insurance Information Institute for 2009–2018; 2017 and 2018 are estimates.

Importantly, over this 10-year period, our return on equity has also been less volatile than that of others in the property and casualty industry. The level and consistency of our return on equity over time reflect the value of our competitive advantages and demonstrate the discipline with which we run our business.

Our financial success and balance sheet strength have enabled us to grow book value per share at an average annual rate of 7% over the last 10 years, and that is after making important investments in our business and returning more than $34 billion of excess capital to our shareholders through dividends and share repurchases. Over that period, we grew dividends per share at an average annual rate of 10%. Notably, since we began our share repurchase program in 2006, we have returned approximately $43 billion of excess capital to our shareholders through dividends and share repurchases, which is well in excess of the market capitalization of the company at that time. We repurchased those shares at an average price per share of $65.84.

Our capital management strategy has been an important driver of shareholder value creation over time. As we have said many times, our first objective for the capital we generate is to reinvest it in our business — organically and inorganically — to create shareholder value. We will continue to retain capital to support growth in our business and invest capital to further our ambitious innovation agenda and advance other strategic objectives. Today, we are making strategic investments in everything from talent to technology. Having said that, we are disciplined stewards of our shareholders’ capital, and to the extent that we continue to generate capital that we cannot reinvest consistent with our objective of generating industry-leading returns over time, we will manage it the same way we have for more than a decade — by returning it to our shareholders.

FINANCIAL HIGHLIGHTS
Financial Highlights

At and for the year ended December 31. Dollar amounts in millions, except per share amounts.

 

2018

2017

2016

2015

2014

Earned Premiums

$27,059

 $25,683

$24,534

$23,874

$23,713

Total Revenues

$30,282

 $28,902

$27,625

$26,815

$27,174

Core Income

$2,430

 $2,043

$2,967

$3,437

$3,641

Net Income

$2,523

 $2,056

$3,014

$3,439

$3,692

Net Income Per Diluted Share

$9.28

 $7.33

$10.28

$10.88

$10.70

Total Investments

$72,278

 $72,502

 $70,488

$70,470

$73,261

Total Assets

$104,233

 $103,483

 $100,245

$100,184

$103,078

Shareholders’ Equity

$22,894

 $23,731

 $23,221

$23,598

$24,836

Return On Equity

11.0%

 8.7%

 12.5%

14.2%

14.6%

Core Return On Equity

10.7%

 9.0%

 13.3%

15.2%

15.5%

Book Value Per Share

$86.84

 $87.46

$83.05

$79.75

$77.08

Dividends Per Share

$3.03

 $2.83

$2.62

$2.38

$2.15

DELIVERING VALUE OVER TIME
Delivering Value Over Time

Ultimately, the success of our strategy — with all its component parts — drives our superior total returns to shareholders over time. We have a track record of managing the company to create value over the long term, through periods of weather volatility; through anticipated and unanticipated developments impacting loss trends; and through both foreseeable economic cycles and more extreme economic conditions, such as the 2008 financial crisis. We could not be more confident that executing on our long-term financial strategy, managing Travelers with an “over time” discipline and investing in our competitive advantages is the right approach for building on Travelers’ outstanding record.

As demonstrated by the chart below, for the period beginning January 1, 2008 (prior to the 2008 financial crisis) and ending December 31, 2018, our total shareholder return of 193.2% exceeded that of the Dow 30, S&P 500 and S&P 500 Financials indices.

total Shareholder Return1


1
Represents the change in stock price plus the cumulative amount of dividends, assuming dividend reinvestment. For each year on the chart, total return is calculated with January 1, 2008, as the starting point and December 31 of the relevant year as the ending point. Source: Bloomberg and S&P Global Market Intelligence. 

 

NON-GAAP RECONCILIATIONS
Non-GAAP Reconciliations

Reconciliation of net income to core income

   For the year ended December 31,
 (Dollars in millions, after-tax) 2018 2017 2016 2015 2014
Net income $2,523 $2,056 $3,014 $3,439 $3,692
Adjustments:
Net realized investment gains (93) (142) (47) (2) (51)
Impact of TCJA1 at enactment 129
Core income $2,430 $2,043 $2,967 $3,437 $3,641

Reconciliation of shareholders' equity to adjusted shareholders' equity

   As of December 31,
(Dollars in millions) 2018 2017 2016 2015 2014 2013
Shareholders’ equity $22,894 $23,731 $23,221 $23,598 $24,836 $24,796
Adjustments:
Net unrealized investment (gains) losses, net of tax, included in shareholders’ equity 113 (1,112) (730) (1,289) (1,966) (1,322)
Net realized investment gains, net of tax (93) (142) (47) (2) (51) (106)
Impact of TCJA1 at enactment 287
Adjusted shareholders’ equity $22,914 $22,764 $22,444 $22,307 $22,819 $23,368

Calculation of return on equity and core return on equity 

  For the year ended December 31,
(Dollars in millions, after-tax) 2018 2017 2016 2015 2014
Net income $2,523 $2,056 $3,014 $3,439 $3,692
Average shareholders’ equity $22,843 $23,671 $24,182 $24,304 $25,264
Return on equity 11.0% 8.7% 12.5% 14.2% 14.6%
Core income $2,430 $2,043 $2,967 $3,437 $3,641
Adjusted average shareholders’ equity $22,814 $22,743 $22,386 $22,681 $23,447
Core return on equity 10.7% 9.0% 13.3% 15.2% 15.5%

Calculation of book value per share and adjusted book value per share

  As of December 31,
(Dollars in millions, except per share amounts) 2018 2017
Shareholders’ equity $22,894 $23,731
Less: Net unrealized investment gains (losses), net of tax, included in shareholders’ equity (113) 1,112
Shareholders’ equity, excluding net unrealized investment gains (losses), net of tax, included in shareholders’ equity $23,007 $22,619
Common shares outstanding 263.6 271.4
Book value per share $86.84 $87.46
Adjusted book value per share $87.27 $83.36

Reconciliation of after-tax underwriting gain (Excluding the impact of catastrophes
and net favorable prior year reserve development) to net income

  For the year ended December 31,
(Dollars in millions, after-tax) 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009
Underwriting gain excluding the impact of catastrophes and net favorable prior year reserve development (underlying underwriting gain) $1,522 $1,239 $1,265 $1,446 $1,430 $1,277 $888 $451 $715 $866
Impact of catastrophes (1,355) (1,267) (576) (338) (462) (387) (1,214) (1,669) (729) (297)
Impact of net favorable prior year reserve development 409 378 510 617 616 552 622 473 818 868
Underwriting gain (loss) 576 350 1,199 1,725 1,584 1,442 296 (745) 804 1,437
Net investment income 2,102 1,872 1,846 1,905 2,216 2,186 2,316 2,330 2,468 2,290
Other, including interest expense (248) (179) (78) (193) (159) (61) (171) (195) (229) (127)
Core income 2,430 2,043 2,967 3,437 3,641 3,567 2,441 1,390 3,043 3,600
Net realized investment gains 93 142 47 2 51 106 32 36 173 22
Impact of TCJA1 at enactment (129)
Net income $2,523 $2,056 $3,014 $3,439 $3,692 $3,673 $2,473 $1,426 $3,216 $3,622
1Tax Cuts and Jobs Act of 2017 (TCJA). 
 
Average shareholders' equity is (a) the sum of total shareholders' equity at the beginning and end of each of the quarters for the period presented divided by (b) the number of quarters in the period presented times two.
 
Adjusted shareholders' equity is shareholders' equity excluding net unrealized investment gains (losses), net of tax, included in shareholder's equity, net realized investment gains (losses), net of tax, for the period presented and the effect of a change in tax laws and tax rates at enactment (excluding the portion related to net unrealized investment gains (losses)). Adjusted average shareholders' equity is (a) the sum of adjusted shareholders' equity at the beginning and end of each of the quarters for the period presented divided by (b) the number of quarters in the period presented times two. 
 
Return on equity is the ratio of (a) net income for the period presented to (b) average shareholders' equity for the period presented. Core return on equity is the ratio of (a) core income for the period presented to (b) adjusted average shareholders' equity for the period presented.
 
Definitions of certain terms on this site are included in the Glossary of Selected Insurance Terms portion of the Form 10-K.