The Travelers Companies, Inc. · NYSE:TRV
The Travelers Companies — Bank of America Merrill Lynch Insurance Conference 2010
28 slides from The Travelers Companies's conference presentation, Feb 23, 2010
Slide 1: Bank of America Merrill Lynch Insurance Conference
Jay S. Fishman Chairman & Chief Executive Officer The Travelers Companies, Inc Bank of America Merrill Lynch Insurance Conference February 23, 2010
Slide 2: Explanatory Note
Explanatory Note This presentation contains, and management may make, certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, may be forward-looking statements. Specifically, earnings
Slide 3: Long-Term Financial Strategy
Long-Term Financial Strategy Balanced Generation of Meaningful approach to top tier earnings and rightsizing capital and capital sustainable and substantially in competitive growing book excess of growth advantages value per share needs over time Create Shareholder Create Shareholder Value Value Obj
Slide 4: Returns Consistent With Long-Term Financial Targets
Returns Consistent With Long-Term Financial Targets Operating Return on Equity 9.6% 17.9% 17.7% 12.4% 14.0% 11.1% 11.0% 10.6% 1.4% 1.4% 1.6% 0.8% 0.5% 0.7% 8.1% 8.2% 0.4% 6.8% 6.7% 5.8% 8.7% 8.9% 8.7% 8.3% 8.3% 4.3% (0.1%) (0.6%) (1.0%) 2005 2006 2007 2008 2009 Long-term fixed investment portfolio i
Slide 5: Total Return: Largest S&P Financial Companies and Other Selected Financial Companies
Total Return: 20 Largest S&P Financial Companies1 and Other Selected Financial Companies (as of February 19, 2010) 2 Year 3 Year 5 Year (Since December 31, 2007) (Since December 29, 2006) (Since December 31, 2004) 3.8% TRAVELERS 50.0% BlackRock Inc. 202.6% BlackRock Inc. 3.3% BlackRock Inc. 14.8% AF
Slide 6: Drivers of Operating Returns
Drivers of Operating Returns Operating Earnings ¾ Underwriting income • Renewal business • New business • Loss costs ¾ Investment income • Long-term fixed income portfolio • Short-term fixed income portfolio • Non-fixed income portfolio Capital Management ¾ Common share repurchases ¾ Common share di
Slide 7: Importance of Retention
Importance of Retention Business Insurance (Excluding National Accounts) 82% 82% 83% 82% 80% 19% 19% 21% 19% 20% 2005 2006 2007 2008 2009 Retention New business as a percentage of expiring premium Renewal business Renewal business is is critical critical factor factor in in profitability profitabili
Slide 8: Importance of Retention: Commercial Accounts Retention
Importance of Retention Commercial Accounts Retention 86% 85% 70% 72% 1 1 1995 1996 0 2008 2009 Retention is Retention is critical critical factor factor in in profitability profitability 1 1995 & 1996 retentions are Travelers only (excludes St. Paul) statistics and reflect the Travelers acquisition
Slide 9: Renewal Rate Change
Impact of Renewal Rate Change on Renewal Premiums Rate Positively Renewal Rate Change Impacts Premiums 0% Rate Negatively Impacts Premiums 8
Slide 10: Importance of Renewal Rate Change
Importance of Renewal Rate Change Business Insurance (Excluding National Accounts) ♦ Renewal Rate Change1 % • Exposure/Other % ▲ Renewal Premium Change2 % 0% 2005 2006 2007 2008 1Q 2Q 3Q 4Q Jan. 2009 2009 2009 2009 2010 1 Each percentage represents the estimated change in average premium on policies
Slide 11: Business Insurance Renewal Rate Change By Product Line
Business Insurance (ex. National Accounts) Renewal Rate Change By Product Line All Lines Property / CMP1 General Liability 0% 0% 0% 1Q'08 2Q'08 3Q'08 4Q'08 1Q'09 2Q'09 3Q'09 4Q'09 1Q'08 2Q'08 3Q'08 4Q'08 1Q'09 2Q'09 3Q'09 4Q'09 1Q'08 2Q'08 3Q'08 4Q'08 1Q'09 2Q'09 3Q'09 4Q'09 ♦ Renewal Rate2 % Worker
Slide 12: Impact of Renewal Rate Change and Exposure
Impact of Renewal Rate Change and Exposure Illustrative Scenarios - Assumes Loss Trend is Zero in Each Scenario Scenario 1 Scenario 2 Premium Flat Premium Flat Renewal Rate Renewal Rate Change +5% Change (5%) Exposure Exposure Change (5%) Change +5% ¾ Margin expansion ¾ Margin contraction ¾ No chang
Slide 13: New Business: Illustrative Product Profitability Life Cycle
New Business: Illustrative Product Profitability Life Cycle Return on Equity New Business 1st Renewal 2nd Renewal 3rd Renewal ¾ New business generally has a higher combined ratio than renewal business ¾ Profitability of a new book of business typically improves over time from better understanding of
Slide 14: Distribution of Renewal Rate Change
Distribution of Renewal Rate Change Full Year 2009 Renewal Rate by Band - Commercial Accounts1 8,000 6,000 Number of Accounts 4,000 2,000 0 < -10% -10% to -5% -5% to 0% 0% to 5% 5% to 10% >10% Pricing strategy Pricing strategy is is driven driven by by individual individual account account underwrit
Slide 15: Drivers Impacting Loss Costs
Drivers Impacting Loss Costs Drivers Impacting Loss Costs ¾ Underwriting - frequency ¾ Loss inflation ¾ Claims experience / claims management ¾ Analytics ¾ Connectivity between claim and underwriting operations ¾ Catastrophe management ¾ Loss prevention programs ¾ Risk profile and exposure Ability t
Slide 16: Examples of Travelers Margin Advantage
Examples of Travelers Margin Advantage Workers’ Compensation - Paid Loss & LAE as % of Premium 60% Comparison to industry continues ¾ Claim effectiveness results in lower loss costs to get better as accident year matures ¾ Claim effectiveness is sustained through: 40% • Scale – provides cost effecti
Slide 17: Drivers of Operating Returns
Drivers of Operating Returns Operating Earnings ¾ Underwriting income • Renewal business • New business • Loss costs ¾ Investment income • Long-term fixed income portfolio • Short-term fixed income portfolio • Non-fixed income portfolio Capital Management ¾ Common share repurchases ¾ Common share di
Slide 18: Investments: Portfolio Mix
Investments: Portfolio Mix ($ in billions) December 31, 2005 2006 2007 2008 2009 Total invested assets $ 68.3 $ 72.3 $ 74.8 $ 70.7 $ 75.0 Taxable fixed maturities 41% 38% 35% 32% 33% Tax-exempt fixed maturities 46% 49% 52% 55% 55% Total fixed maturities 87% 87% 87% 87% 88% Mortgage loans -% -% -% -%
Slide 19: Investments: After-Tax Yields
Investments: After-Tax Yields Total Investment Portfolio 3.7% 3.8% 3.9% 3.1% 3.1% 9.7% 8.5% 7.7% 3.5% 3.6% 3.6% 3.6% 3.8% 3.7% 3.7% 2.6% 1.7% 0.3% 2005 2006 2007 2008 2009 -0.6% -3.1% Long-term fixed income investment portfolio Short-term fixed income investment portfolio Non-fixed income investment
Slide 20: Investments: Long-Term Fixed Income Portfolio
Investments: Long-Term Fixed Income Portfolio Long- Long-Term Fixed Income Investment Portfolio Month of January 2010 (as of December 31, 2009) ¾ Maturities / sales • $533 million • After-tax yield: 3.61% 9% ¾ Purchases • $574 million • After-tax yield: 2.87% • Duration: 7.5 (generally consistent wi
Slide 21: Illustrative Impact of Higher Short-Term and Non-Fixed Income Yields on ROE
Investments: Illustrative Impact of Higher Short-Term and Non-Fixed Income Yields on Operating Return on Equity Illustrative Impact on Full Year 2009 Operating Return on Equity Returning to a higher short-term yield of 2.5% after-tax +0.4% (+$132 million to operating income) Returning to a higher yi
Slide 22: Drivers of Operating Returns
Drivers of Operating Returns Operating Earnings ¾ Underwriting income • Renewal business • New business • Loss costs ¾ Investment income • Long-term fixed income portfolio • Short-term fixed income portfolio • Non-fixed income portfolio Capital Management ¾ Common share repurchases ¾ Common share di
Slide 23: Very Strong Financial Position
Very Strong Financial Position ($ in millions) 2006 2007 2008 2009 Debt $ 5,760 $ 6,242 $ 6,181 $ 6,527 Preferred equity 129 112 89 79 Common equity 1 24,553 25,884 25,374 25,475 Total capital 1 $ 30,442 $ 32,238 $ 31,644 $ 32,081 Debt to capital 1 18.9% 19.4% 19.5% 20.3% Statutory surplus $ 20,945
Slide 24: Capital Management: Rightsizing Capital
Capital Management: Rightsizing Capital Common Share Repurchases and Dividends as a Percentage of Net Income Income 110.2% 96.9% 80.1% 76.3% 43.2% 38.3% 2005 2006 2007 2008 2009 2005-2009 2010 year 2010 -to-date11 share year-to-date share repurchases repurchases of of $0.7 $0.7 billion billion 1 As
Slide 25: Capital Management: Impact on Returns
Capital Management: Impact on Returns Operating Return on Equity 17.9% 17.8% 17.7% 16.5% 14.0% 12.4% 11.6% 10.8% 2006 2007 2008 2009 Operating return on equity - reported Operating return on equity - adjusted to exclude cumulative impact of common share repurchases1,2 Share repurchases Share repurch
Slide 26: Continuing to Grow Book Value Per Share
Continuing to Grow Book Value Per Share Book Value Per Share % $52.54 : 13.3 CAGR $42.22 $43.12 $36.86 $31.94 2005 2006 2007 2008 2009 Adjusted Book Value Per Share1 $48.96 G R : 11.7% CA $43.37 $41.23 $36.20 $31.47 2005 2006 2007 2008 2009 1 Adjusted book value per share is total common shareholder
Slide 27: Disclosure
Disclosure • For further information, please see Travelers reports filed with the SEC pursuant to the Securities Exchange Act of 1934 which are available at the SEC’s website (www.sec.gov) • Copies of this presentation and related financial supplement are publicly available on the Travelers website
Slide 28: End Slide
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