Travelers 2021 Annual Report

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

Earned Premiums

Total Revenues

Core Income

Net Income

Net Income Per Diluted Share

Total Investments

Total Assets

Shareholders' Equity

RetuOn Equity

Core RetuOn Equity

Book Value Per Share

Dividends Per Share

$ 84,423

$ 77,884

$ 72,278

• $ 72,502

  $116,764

  $110,122

  $104,233

• $ 103,483

  $ 29,201

  $ 25,943

  $ 22,894

• $ 23,731

10.0% 11.3%

10.5% 10.9%

11.0% 8.7%

10.7% 9.0%

$ 115.68

$ 101.55

$

3.37

$

3.23

The Travelers Companies, Inc. (NYSE: TRV) is a leading provider of property casualty insurance for auto, home and business. A component of the Dow Jones Industrial Average, Travelers has approximately 30,000 employees and generated revenues of approximately $35 billion in 2021. For more information, visit Travelers.com.

To My Fellow Shareholders

At Travelers, we are driven to perform today and transform for tomorrow. Our 2021 results demonstrate what that commitment looks like in action. Our outstanding financial performance this year reflects both our relentless execution - day in and day out - across our businesses, and the impact of the significant investments and strategic initiatives we have undertaken in recent years.

Our 2021 Results

Travelers generated very strong core income of $3.5 billion and $13.94 of core income per diluted share, up 33% compared to the prior year. Core retuon equity increased by more than 200 basis points to an excellent 13.7%, a meaningful spread above both the 10-year Treasury and our cost of equity.

In 2021, we earned full year core income of $3.5 billion*- an increase of 31% year over year - generating an industry-leading core retuon equity of 13.7%. On top of that, thanks to our best-in-class marketplace execution, we grew net written premiums to a record $32 billion. Our strong earnings and balance sheet enabled us to continue to invest in our ambitious innovation agenda, while also returning more than $3.0 billion of excess capital to our shareholders and growing adjusted book value per share by 10%.

These results speak to the soundness of our long-term strategy and excellent execution by our talented workforce. With that, together with our scale, resources and deep domain expertise, we enter 2022 well positioned to continue delivering industry-leading results over time.

Now, let me tuto how we performed in 2021 and how we are positioning Travelers for the future.

We delivered record underlying underwriting income for the year of $2.3 billion after-tax, and a very strong underlying combined ratio of 90.3%. Our average underlying underwriting income for the past five years was 34% greater than the average underlying underwriting income for the five years prior to that. Significantly, underlying underwriting income as a percentage of core income in 2021 remained at a historically high level, an indication of the high quality of our earnings. In other words, when you adjust for the things over which we have less control, such as catastrophes, prior year reserve development and the interest rate environment, we delivered operating performance that was very strong compared to our historical average. Our 2021 results demonstrate that our strategy of innovating to grow the top line at attractive returns and improving productivity and efficiency continues to pay off.

*See "Additional information" for a discussion and calculation of non-GAAP financial measures.

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During the year, we improved our expense ratio to a historically low 29.4%, a 50-basis-point improvement over the prior year and a 7% improvement over the past five years. We achieved this by leveraging cutting-edge technology and workflow enhancements, and not by depriving our business of important investments. Improving operating leverage continues to be a strategic priority for us. It gives us the flexibility to invest the gains in our strategic priorities or let the benefit fall to the bottom line.

Our cash flow from operations reached an all-time record of $7.3 billion in 2021. This reflects the benefit of continued increases in premium volume, strong profitability and lower-than-normal overall claim payouts, as courtroom and other settlement activity remained below historic levels throughout the year. We assume that the lower-than-normal payout patteis ultimately a timing issue, and, as a result, when establishing our reserves and pricing our products, we are continuing to assume that elevated severity related to social inflation has not abated.

Our cash flow from operations has increased significantly over the last five years, with the average annual cash flow from operations for that period nearly 50% higher than the average for the five years prior to that. Strong cash flow enables us to make significant investments in our business, retuexcess capital to shareholders and grow our investment portfolio. Over the past five years, our investment portfolio grew an impressive $16.9 billion, or 24%, to $87.4 billion at year-end.

Turning to the top line, today's production generates tomorrow's earned premiums. In 2021, we delivered record net written premiums of $32 billion for the year, up 7% compared to the prior year. This represents the 12th consecutive year of net written premium growth. All three of our business segments contributed to the strong top-line performance, with Business Insurance up 4%, Bond & Specialty Insurance up 14% and Personal Insurance up 10%. This premium growth has been driven by high levels of retention, higher pricing and the addition of high-quality new business. Significantly, we have strong confidence in the profitability of the business that we are putting on the books, as it comes from products, geographies, classes of business and distribution partners that we know well.

We believe that retuon equity is the right way to measure our success and that any commitment to deliver an industry-leading retuon equity over time requires a strategy to grow over time. 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. To that end, several years ago, we laid out a plan to achieve profitable growth in the context of the forces of change that we had previously identified as impacting the industry - namely, changing consumer expectations, emerging technology trends, more sophisticated data and analytics, and evolving distribution models.

In light of these trends, we have established key innovation priorities and are investing in capabilities consistent with those priorities. Notwithstanding a challenging environment for the industry, including the second year of a global pandemic, we have faithfully and consistently executed on this strategy. This relentless execution has paid off. Since 2016, we have grown net written premiums at a compound annual growth rate of 5.1%, substantially outpacing both the growth in gross domestic product over the same period and our compound annual growth rate of 2.7% for the prior years in the decade.

At the same time as we have grown net written premiums, we have also improved our underlying margins - our underlying combined ratio over the last two years has been meaningfully below the 10-year average. That tells us that we have not grown by either underpricing the product or taking on too much risk.

Investment Expertise

The performance of our investment portfolio - a key source of stability and strength for Travelers - continues to be exceptional. Our investment portfolio is managed first and foremost to support our insurance operations and, accordingly, is positioned to meet our obligations to policyholders under almost every foreseeable circumstance - anything from a global pandemic to a significant natural disaster to a financial crisis. With this in mind, we are focused on risk-adjusted returns and credit quality rather than reaching for yield that is not commensurate with the underlying risk.

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The Travelers Companies Inc. published this content on 08 April 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 08 April 2022 14:40:55 UTC.