The Travelers Companies, Inc. · NYSE:TRV
The Travelers Companies — Investor Day (May 2007)
136 slides from The Travelers Companies's investor day presentation, May 22, 2007
Slide 1: Investor Day Meeting May 22, 2007
Investor Day Meeting May 22, 2007 0
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: Agenda
Agenda 12:20 - 12:25 Introduction Mike Connelly 12:25 -1:45 Playing to Our Strengths Jay Fishman An Extraordinary P&C Franchise Brian MacLean Q&A Personal Insurance & Select Accounts: 1:45 - 2:30 Joe Lacher Our Formula for Success Q&A 2:30 - 2:45 Break 2:45 - 3:45 Travelers' Organic Growth Story Joh
Slide 4: 2007 Annual Guidance
2007 Annual Guidance ¾ Earnings per diluted share range of $5.60 to $5.85 Guidance assumptions ¾ Catastrophe losses of $530 million pre-tax and $355 million after-tax for the full year ¾ No additional prior year reserve development, favorable or unfavorable ¾ An approximately $100 million after-tax
Slide 5: Playing to Our Strengths
Playing to Our Strengths Jay S. Fishman Chairman & Chief Executive Officer 4
Slide 6: Travelers Historical Net Written Premiums
Travelers Historical Net Written Premiums ($'s in billions) $24 $21.2 $20.4 21 $19.0 18 15 $13.2 $11.9 12 $9.8 $8.8 $7.8 $8.1 $8.2 9 $6.3 6 $3.6 $3.6 3 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Note: The financial information for the years 1997-2003 reflects the impact of th
Slide 7: Travelers Historical Income from Continuing Operations
Travelers Historical Income from Continuing Operations ($'s in billions) $4.5 $4.21 4.0 3.5 3.0 Catastrophe Losses 2.5 $2.06 2.0 $1.70 1.5 $1.31 $1.03 $1.10 $1.14 $1.06 $0.87 1.0 $0.39 $0.42 0.5 $0.17 $0.22 0.0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Note: The financial info
Slide 8: Fortune Ranking – Revenues
Fortune 100 Ranking – Revenues 2006 Revenues Rank Company ($B) 77 Cisco Systems $ 28.5 79 American Express 27.1 82 Hartford Financial Services 26.5 85 Aetna 25.6 89 Travelers 25.1 91 Countrywide Financial 24.4 94 Coca-Cola 24.1 97 3M 22.9 100 Haliburton 22.6 Source: Fortune 500 Survey, April 30, 200
Slide 9: Fortune Ranking – Net Income
Fortune 100 Ranking – Net Income 2006 Net Income Rank Company ($B) 27 Home Depot $ 5.8 29 Cisco Systems 5.6 33 Coca-Cola 5.1 35 Allstate 5.0 37 Travelers 4.2 41 3M 3.9 44 American Express 3.7 49 Walt Disney 3.4 54 Hartford Financial Services 2.7 Source: Fortune 500 Survey, April 30, 2007 issue. 8
Slide 10: Current View of the Marketplace
Current View of the Marketplace 9
Slide 11: Industry Cyclicality
Industry Cyclicality Percent Fortune 500 20 US P&C Insurers Return on Equity % 15 10 5 0 (5) 1978 1985 1992 1999 2006 Source: Insurance Information Institute, 2006 estimate for Fortune 500 from Insurance Information Institute 10
Slide 12: Stable Retention Trends
Stable Retention Trends Travelers Commercial Lines Retention Ratios 90% Remain stable at historically 80% high levels 70% 1Q 06 2Q 06 3Q 06 4Q 06 1Q 07 60% Commerical Accounts Select Accounts 1 Other Business Insurance Bond & Financial Products Important indicator of market environment 1 Includes In
Slide 13: Relatively Stable Renewal Pricing Trends
Relatively Stable Renewal Pricing Trends Commercial Accounts (Middle Market) Pricing 10% Price change 5% 0% -5% 1Q 06 2Q 06 3Q 06 4Q 06 1Q 07 -10% Travelers Peer 1 Peer 2 Peer 3 Stable pricing trends among leading commercial carriers Travelers statistics for renewal price change which includes rate
Slide 14: Travelers Franchise Strengths
Travelers Franchise Strengths ¾ Seasoned management team with experience through cycles ¾ Significant financial strength ¾ Unparalleled product breadth and underwriting specialization ¾ Strong agency relationships with leading market position ¾ Ease of doing business ¾ Claim effectiveness ¾ Sophisti
Slide 15: Travelers Franchise Strengths
Travelers Franchise Strengths ¾ Sophisticated Seasoned businessteam management analytics with experience through the cycles ¾ Significant financial strength ¾ Unparalleled product breadth and underwriting specialization ¾ Strong agency relationships with leading market position ¾ Ease of doing busin
Slide 16: Travelers Information Advantage
Travelers Information Advantage ¾ Sophisticated business analytics – 15 years in the making Granular data analysis, by territory and by product, across the franchise: New and renewal business pricing monitors Submission, quote and close volume reporting Frequency and severity monitoring Indu
Slide 17: Premium Volume Basics
Premium Volume Basics Annual Premium $21 billion 1 Retention of 85% 100% Retained Not Retained $18 billion $3 billion Sophisticatedbusiness Sophisticated businessanalytics analyticsare are essentialwhen essential whenwriting writingnew newbusiness business 1 Representative example for illustrative p
Slide 18: Product Profitability Analysis
Product Profitability Analysis Business Unit 1 Business Unit 2 Business Unit 3 Oper. Comb. Oper. Comb. Oper. Comb. Profit % Ratio Profit % Ratio Profit % Ratio NWP - Product 1 Dec YTD AccYr/ Growth xx xx xx xx xx xx Policy View xx xx xx xx xx xx Benchmark @ xx% -xx% xx xx xx xx xx xx NWP - Product 2
Slide 19: Margins Remain Attractive
Margins Remain Attractive Expected Current Returns 1 Above, Within and Below Targeted Returns 71% 18% Targeted current 25% returns 13% 4% 10% 1 Based on allocated equity by product (does not allocate 100% of GAAP shareholders’ equity, as a portion of equity supports prior year/run-off reserves); pro
Slide 20: Monitoring New Business Pricing
Monitoring New Business Pricing Line 1 Line 2 Line 3 New vs New vs New vs New Prem Renewal Renewal New Prem Renewal Renewal New Prem Renewal Renewal $MM Prem $MM Diff $MM Prem $MM Diff $MM Prem $MM Diff Q4 2005 xx.x xxx.x x.x% xx.x xxx.x (2.7%) xx.x xxx.x x.x% Q1 2006 xx.x xxx.x x.x% xx.x xxx.x (5.5
Slide 21: Loss Ratio Analysis
Loss Ratio Analysis Loss Rollforward ($ in millions) Month 1 Month 2 Month 3 ... Month 12 Gross EP - 2006 Full Year Plan $ xxxxxx $ 2,763 $ xxxxxx $ xxxxxx EP - YTD Actual $ xxxxxx $ 438 $ xxxxxx $ xxxxxx 2005 Normalized Loss Ratio xx.x% 49.3% xx.x% xx.x% Earned Rate x.x% 0.5% x.x% x.x% Earned Expos
Slide 22: Reserving and Profitability Metrics
Reserving and Profitability Metrics Business Unit Line Of Business ($ Millions) R e s e r v e s Gross Loss & ALAE P r o f i t a b i l i t y before Federal Income Tax Calendar/ Carried Indicated Gross Premium & Indicated Ultimate Expense Ratio Gross Profit Reinsurance Net Profit Economic Accident Pai
Slide 23: Reserving and Profitability Metrics
Reserving and Profitability Metrics Business Unit Line Of Business Profitability Track Record 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Net Earned x x x x x x x x x x Premium ($M) Evaluated Gross Net Gross Net Gross Net Gross Net Gross Net Gross Net Gross Net Gross Net Gross Net Gross Net as
Slide 24: Metrics Detail
Metrics Detail ¾ Product profitability analysis Countrywide – CAG Field Controllable Income Statement Country-wide Income Statement Jane Smith – (xxx) xxx-xxxx Southwest Region CAG Field – Controllable Income Statement Region Income Statement John Smith – (xxx) xxx-xxxx Los Angeles – Controllable In
Slide 25: Travelers Franchise Strengths
Travelers Franchise Strengths ¾ Seasoned management team with experience through cycles ¾ Significant financial strength ¾ Unparalleled product breadth and underwriting specialization ¾ Strong agency relationships with leading market position ¾ Ease of doing business ¾ Claim effectiveness ¾ Sophisti
Slide 26: An Extraordinary Property & Casualty Franchise
An Extraordinary Property & Casualty Franchise Brian MacLean Chief Operating Officer 25
Slide 27: Our Competitive Advantage
Our Competitive Advantage ¾ Our underwriting process is disciplined and fact-based Our data and business analytics drive superior risk selection and pricing ¾ Our breadth of capabilities and expertise are unmatched in the industry ¾ These capabilities allow us to find opportunities We can out-pe
Slide 28: Information Advantage – Robust Process
Information Advantage – Robust Process ¾ Comprehensive and proactive process that is built into our corporate “DNA” ¾ Consistent focus for the past 15 years ¾ Extensive management information and experienced resources are combined in the decision-making process ¾ Continually improving process to inc
Slide 29: Information Advantage – Business Analytics
Information Advantage – Business Analytics Metrics ¾ Profitability ¾ Production Retention Views New business ¾ By Region New and renewal pricing ¾ By Office Submission volume ¾ By Line of Business Quote ratios ¾ By Account Size Close ratios ¾ By Industry / Program ¾ Pricing segmentation
Slide 30: Select Accounts Pricing Analytics
Select Accounts Pricing Analytics l 6% 15% Pricingtrends Pricing trendsare arecontinually continuallyanalyzed analyzed atall at alllevels levelsof ofthe theorganization organization acrossall across allindustries industriesand andproduct productlines lines Master Pac is a branded Travelers small bus
Slide 31: Select Accounts Pricing Analytics
Select Accounts Pricing Analytics l 0.86 0.95 0.81 0.89 30
Slide 32: Select Pricing Analytics
Select Pricing Analytics Master Pac State “A” New & Renewal Pricing Compared to Filed Manual Rates Q1 '06 Q2 '06 Q3 '06 Q4 '06 Q1 '07 Renewal New Analyzenew Analyze newand andrenewal renewalpricing pricingdifferential differentialtrends trends 31
Slide 33: Blocks of Business Get Better With Age
Blocks of Business Get Better With Age Accounts Gets Better With Business UnitAge "B" Retention Ratios & Retained Loss Ratios 90% 70% Retained Loss Ratio 80% 60% Retention Ratio 70% 50% 60% 40% 1 YR 2 YRS 3 YRS 4+ YRS Retentio n Lo ss Ratio Continualunderwriting Continual underwritingmaintains maint
Slide 34: Industry Operating Models
Industry Operating Models National / Multi-Line Regional / Specialty Carrier Carrier National Scale Local Focus Product Breadth Specialized Underwriting or Expense Efficiency Business Investment Consistent Nimble Quantity of Data Targeted Data 33
Slide 35: The Complete Package
Travelers Operating Model The Complete Package National Scale AND Local Focus Product Breadth AND Specialized Underwriting Expense Efficiency AND Business Investment Consistent AND Nimble Quantity of Data AND Targeted Data 34
Slide 36: Our Competitive Advantage
Our Competitive Advantage ¾ Our underwriting process is disciplined and fact based Our data and business analytics drive superior risk selection and pricing ¾ Our breadth of capabilities and expertise are unmatched in the industry ¾ These capabilities allow us to find opportunities We can out-pe
Slide 37: Leveraging Our Expertise: The Opportunity
Leveraging Our Expertise Example: Workers Compensation in State “Y” The Opportunity ¾ Grow guaranteed cost workers compensation by leveraging our claim information advantage: Improve pricing segmentation by refining demographics and territorial analytics through the utilization of claim activity d
Slide 38: Leveraging Our Expertise: The Approach
Leveraging Our Expertise Example: Workers Compensation in State “Y” The Approach ¾ Identified a state where we were under-penetrated in guaranteed cost workers compensation ¾ Dissected our claim data to identify key drivers of loss and to enhance underwriting knowledge ¾ Measured performance against
Slide 39: Leveraging Our Expertise: The Results
Leveraging Our Expertise Example: Workers Compensation in State “Y” The Results ¾ Identified 3 groups of MSA’s and targeted growth in those areas with positive claim activity attributes Positive Neutral Challenging Metro Area 1 Metro Area 3 Metro Area 2 Metro Area 4 Metro Area 6 Metro Area 5 Metro A
Slide 40: Travelers Franchise Strengths
Travelers Franchise Strengths Product Breadth & Underwriting Specialization Ease of Doing Information Distribution Business Advantage Depth Claim Effectiveness Fostering culture of creating new opportunities 39
Slide 41: An Extraordinary P&C Franchise
An Extraordinary P&C Franchise Consistently Profitable AND Responsibly Grow Market Share Over Time 40
Slide 42: Questions?
eee a TRAVELERS J
Slide 43: Personal Insurance & Select Accounts: Our Formula for Success
Personal Insurance & Select Accounts: Our Formula for Success Joseph P. Lacher, Jr. Executive Vice President 42
Slide 44: Personal Insurance and Select Accounts
Personal Insurance and Select Accounts ¾ Flow business formula ¾ Update Personal Insurance SM QuantumAuto Claim initiatives ¾ Preview SM QuantumHome SM Select Accounts – TravelersExpress introduction 43
Slide 45: Key Success Drivers
Key Success Drivers Product Sophistication Ease of Doing Information Breadth Business Advantage & Depth Claim Effectiveness 44
Slide 46: Personal Lines Market Positions
Personal Lines Market – Top 15 ($’s in billions) Personal Lines Market Positions Ranked by 2006 Market Share Changes1 2006 Market Company Company DWP Share 1 State Farm $43.2 19.2% 1 GEICO 2 Allstate 25.6 11.4% 2 Travelers Increased 3 Farmers 12.3 5.5% 3 USAA 4 Progressive 12.1 5.4% 4 Mercury Genera
Slide 47: Systematic Distribution & Geographic Diversification
Systematic Distribution & Geographic Diversification ($’s in millions) Q1 2007 Trailing 12 Month FY 2006 Agent Location Net Written Net Written Premiums Growth1 '04-'07 Premiums Growth Total $6,711 4,560 $436 % Change 43% 8% 2 % of Total Eastern states 60% 29% 35% All other 40% 71% 65% ¾ Historic pe
Slide 48: A Broader Market Reach – QuantumAuto
SM A Broader Market Reach – QuantumAuto PL Auto Travelers Marketplace 2000 2002 2004 2006 1X 12X 100X 1000X Q U $120 Preferred Preferred A and N Billion Standard Standard T U M $30 Non- Non-Standard Billion Status as of 1Q 07 ¾ Active in 38 states and D.C. ¾ Represents 28% of annualized written prem
Slide 49: Monitoring and Managing Results
Monitoring and Managing Results s nte %) ) .7% te ) ) ) (-4 %) (-4 %) (-4 %) ) ) ers ) an (-6 ) ) te ) ) ary .2% .8% .9% .3% .4% niv % mp y D 1.6% .8% .7% .7% Co 0.7 f Ra de Ra y B .0 y A .8 y C .8 An (-4.9 (+3 (-4 (-2 an (-1 Re an (-6 (-1 (-7 (-3 (-4 w/ .6% .5% - ** mpa y B ( ro yG yC yD mp ny D mp
Slide 50: Homeowners - Building Upon Strength
Homeowners - Building Upon Strength ¾ Consistently outperformed the industry ¾ Results achieved through risk sophistication and disciplined execution ¾ Introduction of QuantumHome improves leadership position SM 126% Homeowners Combined Ratio 1 300% Net Written Premium Growth 2 250% ’01 – ’06 108% C
Slide 51: QuantumHome – Product and Pricing Sophistication
SM QuantumHome – Product and Pricing Sophistication ¾ Improved ease of use Introduced coverage endorsement bundles Enhanced integrated underwriting process ¾ Multivariate pricing approach ¾ Increased granularity provides selection advantage Example: Kansas Pre-Quantum – 5 Territories Quantum – 3
Slide 52: QuantumHome Risk Profile Distribution – Early Results
SM QuantumHome Risk Profile Distribution – Early Results 50.0% Pre – QuantumHomeSM QuantumHomeSM Percentage of Polices 37.5% Expanded Reach 25.0% Orange & Blue each sum to 100% 12.5% 0.0% Lower . . . . Higher Policy Risk Distribution Achievingbroader Achieving broaderreach reachthrough throughincrea
Slide 53: QuantumHome
QuantumHomeSM ¾ Active in 12 states 0.0% Existing Home Sales Trend* ¾ Rollout continues through early 2008 -5.0% ¾ Impact on growth modest due to external factors: -10.0% Decline in existing home sales Apr Aug O ct Jul Dec Mar Jan Feb Jun Sep Jan Feb May Nov March market Modest market softening
Slide 54: Claim Effectiveness
Claim Effectiveness ¾ Faster Identification, intervention and resolution speed ¾ Closer More direct claimant contact and in-house management ¾ Tighter Minimize non-indemnity related leakage 53
Slide 55: Claim Effectiveness – Speed Improvement
Claim Effectiveness – Speed Improvement Issue Notice Estimate Property 336 Auto 189 Countrywide – March 2004 106 ¾¾Improvement Improvement 57 Property:9½ Property: 9½days days Auto:5½ Auto: 5½days days Countrywide Current Period 50 ¾¾65% 65%inspected inspectedwithin within48 48hours hours 43 B
Slide 56: Claim Effectiveness – Closer Contact
Claim Effectiveness – Closer Contact Percent of Claims Handled Face-to-Face e nt vem Im pro 2 x Before Current Best Office ¾ Dramatically reduced claim adjustment by 3rd parties ¾ Nearly 4 out of 5 claimants see company claim handler 55
Slide 57: Leveraging Multi-Line Advantage
Leveraging Multi-Line Advantage Proper Payment Medical bill re-pricing Fraud detection Triggers Triggers Workers Compensation Medical Involvement 350k injuries Nurse oversight All Automobile Medical equipment review Injury 100k injuries Pharmaceutical Claims management General Liability En
Slide 58: Severity Trends – Personal Auto
Severity Trends – Personal Auto 3rd Party Property Damage 1st Party Collision 3rd Party Bodily Injury 1.10 1.10 1.10 Index of Average Claim Payment 0.98 0.98 1Q04 0.98 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q04 2Q04 3Q04 4Q
Slide 59: Frequency Trends – Personal Auto
Frequency Trends – Personal Auto 3rd Party Auto Property Damage 1.02 TRV Market 2000 2002 2004 2006 Claim Frequency Index of Paid 1X 12X 100X 1000X Preferred and Standard Non- 0.88 Standard 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 Travelers Broader product reach Adjusted Industry1
Slide 60: Select Accounts Overview
Select Accounts Overview SM SM Total TravelersExpress TravelersExpress Plus 2006 Direct Written Premium $2.7 $1.2 $1.5 ($’s in billions) Average $7,000 $4,000 $17,000 Account Size ¾ Flow business ¾ Average commission less than $600 per account ¾ Business success driven by Transaction speed and eas
Slide 61: TravelersExpress Goals
SM TravelersExpress Goals ¾ Broaden product reach Industry segment Line of business ¾ Increase product sophistication Predictive modeling and multivariate analysis ¾ Increase ease of use Faster decisions Streamline process Significantly expand account rounding ¾ Expanded agent acceptance
Slide 62: TravelersExpress Broader Market Reach
SM TravelersExpress Broader Market Reach ¾ Historic concentrations Over 2/3rds of written premium in CMP, Industry Line Worker’s property & liability Segment CMP Comp. Auto Other Business B.O.B.S Office Historical Over 2/3rds of this written premium in 4 industry segments: B.O.B.S. Building “Swe
Slide 63: TravelersExpress Broader Market Reach
SM TravelersExpress Broader Market Reach Inception to April 2007 in initial 10 states only Mix of New Business Pre-Launch Post-Launch Segment All Other All Other B.O.B.S B.O.B.S Achieving broader Achieving broader reach in reach in both both segment and segment and line line All Other Line All Other
Slide 64: TravelersExpress Broader Market Reach
SM TravelersExpress Broader Market Reach Inception to April 2007 in initial 10 states only Percent of Policies Issued ¾ For small transaction size/small 100% Via Automated Underwriting commission accounts, “ease” is a critical differentiation ¾ Significantly improved speed and ease 50% Initiated q
Slide 65: TravelersExpress Broader Market Reach
SM TravelersExpress Broader Market Reach Inception to April 2007 in initial 10 states only Agent Acceptance & Utilization Agents Quoting Submission Flow % p 36 87% U U p Pre-Launch Post-Launch Pre-Launch Post-Launch Quotes Per Agent 37% ¾ Sales ¾ Salesare arebeing beingdriven drivenby byincreased in
Slide 66: TravelersExpress Growth Impact
SM TravelersExpress Growth Impact Inception to April 2007 in initial 10 states only SM Growth in TravelersExpress States 10% 10% 0% 0% Pre Post Pre Post Commercial Multi-Peril All Lines Resultsare Results arestrong strongand andencouraging encouraging 65
Slide 67: Personal Insurance and Select Accounts
Personal Insurance and Select Accounts Continuing integrated investment in success drivers… ¾ Leverage product sophistication Product Quantum SM Sophistication TravelersExpress Ease of Doing Information Breadth ¾ Increase ease of use Business Advantage & Depth ¾ Continue distribution expansion C
Slide 68: Questions?
eee a TRAVELERS J
Slide 69: Travelers’ Organic Growth Story
Travelers’ Organic Growth Story John Albano Executive Vice President Business Insurance 68
Slide 70: Our Track Record
Our Track Record Net Written Premium Growth 24 Travelers & St. Paul Travelers & Aetna Merger 21 Merger 18 15 w th 12 g r o M &A e 9 esiv s r 6 Imp gro w th or g anic st 3 M o de 0 1994 2006 69
Slide 71: 2006 Key Business Initiatives
2006 Key Business Initiatives ¾ Commercial Lines Foster a more consistent sales and marketing culture across the business units. Expand the use of predictive modeling into the underwriting process for business segments and lines of business, i.e., Select Accounts, workers compensation, commercia
Slide 72: Enabling Profitable Organic Growth
Enabling Profitable Organic Growth ¾ Our traditional strengths Specialized underwriting Risk Control Claim Customer satisfaction National scale Metrics AND ¾ Adding a strong sales and marketing culture Product breadth Ease of doing business Distribution advantage 71
Slide 73: Building on Our Underwriting Specialization
Building on Our Underwriting Specialization … Small Mid-Size Large Select Commercial National Accounts Express Express Plus Specialized Focus Industry Focused Product Focused Specialized Distribution Financial & Professional Construction Large Property Inland Marine Northland – Trucking Technology O
Slide 74: Product Breadth: New Products
Product Breadth New Products 2006 Initiatives 2007 Initiatives ¾ Wrap+ SM ¾ K-12 Public Schools ¾ Auto Dealers ¾ Aviation ¾ Sprinkler Installation ¾ Certified Green Building Contractors Coverage ¾ Millwrights ¾ Utility Contractors ¾ New Select Programs ¾ Printers ¾ Select Mono-line ¾ Concrete Contra
Slide 75: Ease of Doing Business: Embedded Products
Ease of Doing Business Embedded Products 2006 Initiatives 2007 Initiatives ¾ Boiler ¾ Employment Practices Liability ¾ Ocean Cargo ¾ Tech Pac ¾ Construction Equipment & ¾ Identity Theft Small Property ¾ Fidelity/Crime ¾ Internet Liability ¾ Inland Marine ¾ Global Companion 74
Slide 76: Ease of Doing Business: Services
Ease of Doing Business Services ¾ TravelersExpress SM ¾ Local relationships with Regional Presidents ¾ Expanded marketing and underwriting capabilities ¾ eCarma - customer risk management information tool SM ¾ Internet claim reporting ¾ ConciergeClaim service SM ¾ Claim University 75
Slide 77: Claim University
Claim University Windsor, Connecticut 76
Slide 78: Distribution Advantage
Distribution Advantage ¾ 14 regions led by senior field leaders National strength and local presence • Regions average approximately $1.5 billion NWP • Aligning specialization at point of sale • Experts in their marketplace 77
Slide 79: An Extraordinary P&C Franchise
An Extraordinary P&C Franchise Consistently Profitable AND Responsibly Grow Market Share Over Time 78
Slide 80: Commercial Accounts: Creating Opportunities, Same Discipline
Commercial Accounts: Creating Opportunities, Same Discipline Bill Cunningham President – Commercial Accounts
Slide 81: Commercial Accounts - Overview
Commercial Accounts - Overview ¾ $2.6 billion gross written premiums in 2006 ¾ Individually underwritten accounts – generally between $50,000 and $1 million in premium per account ¾ Broad industry expertise - ¾ National scale and local presence Travelers Locations 80
Slide 82: Illustrative Business Statistics
Illustrative Business Statistics Retention 1 Renewal Price Change 90% 10% 5% 85% 0% -5% 80% -10% 4Q 1Q 2Q 3Q 4Q 1Q 4Q 1Q 2Q 3Q 4Q 1Q 2005 2006 2006 2006 2006 2007 2005 2006 2006 2006 2006 2007 New Business ($s in millions) $200 $100 $0 4Q 1Q 2Q 3Q 4Q 1Q 2005 2006 2006 2006 2006 2007 Strong renewal r
Slide 83: Executing on the Strategy
Executing on the Strategy Continued Disciplined Execution Combined with a plan to generate more opportunities by: Shifting from a Culture of Reacting to Creating 82
Slide 84: Executing on the Strategy: New Business
Executing on the Strategy New Business $152 ($s in millions) New Distributors 8% Added Lines to Existing Customers 10% New Product 12% $58 IncreasedOpportunity Increased Opportunity 70% 70% $94 Average 1Q - 3Q 2006 Average 4Q 2006 - 1Q 2007 Driversof Drivers ofincreased increasednew newbusiness busi
Slide 85: Creating More Opportunities: New Business Submissions
Creating More Opportunities New Business Submissions ease Number of Submissions I n c r 32% 4Q 2005 1Q 2006 2Q 2006 3Q 2006 4Q 2006 1Q 2007 Increasingnew Increasing newbusiness businessopportunities opportunities 84
Slide 86: Creating More Opportunities
Creating More Opportunities Source of Increased Submission Volume 1Q07 vs. 1Q06 New Distribution 8% Existing Distribution New Product 73% 19% Increasingnew Increasing newbusiness businessopportunities opportunities 85
Slide 87: Creating More Opportunities: Increased Market Visibility
Creating More Opportunities Increased Market Visibility 217 60% # of Underwriters Producing > $250,000 New Business Increase! 184 136 Average 1Q-3Q 2006 4Q 2006 1Q 2007 Moreunderwriters More underwriterscontributing contributingto toour ournew newbusiness businesssuccess success 86
Slide 88: Executing on the Strategy: New Business
Executing on the Strategy New Business $152 ($s in millions) New Distributors 8% Added Lines to Existing Customers 10% NewProduct New Product 12% 12% $58 Increased Opportunity 70% $94 Average 1Q - 3Q 2006 Average 4Q 2006 - 1Q 2007 Driversof Drivers ofincreased increasednew newbusiness businesssucces
Slide 89: Executing on the Strategy – New Products
Executing on the Strategy – New Products Auto Dealers ($s in millions) $9.4 4Q 06 Product Introduction $8.2 New Business $1.4 Average 1Q-3Q 2006 4Q 2006 1Q 2007 Successfullaunch Successful launchof of product product 88
Slide 90: Capitalizing on New Products
Capitalizing on New Products Auto Dealers - APPROACH ¾ Evaluate industry opportunity ¾ Create the product ¾ Match the opportunities REGIONAL EXAMPLE ¾ $260 million premium opportunity identified in region X Q4 2005 – Q1 2006: 10 submissions Q4 2006 – Q1 2007: 154 submissions ¾ Added $4.6 million
Slide 91: Executing on the Strategy: New Business
Executing on the Strategy New Business $152 ($s in millions) New Distributors 8% Added Added Linesto Lines toExisting Existing Customers Customers 10% 10% New Product 12% $58 Increased Opportunity 70% $94 Average 1Q - 3Q 2006 Average 4Q 2006 - 1Q 2007 Driversof Drivers ofincreased increasednew newbu
Slide 92: Adding Lines to Existing Customers
Executing on the Strategy Adding Lines to Existing Customers Account XYZ Automobile Liability General Liability Total Premium: $80,106 Additional Premium 1Q 2007 added: $631,966 Workers Compensation Umbrella Property Ocean Marine Global New Total Premium: $712,072 91
Slide 93: Adding Lines to Existing Customers
Executing on the Strategy Adding Lines to Existing Customers ($’s in millions) New Business from Existing Customers $27.3 New Business $19.2 $17.4 Average 1Q-3Q 4Q 2006 1Q 2007 2006 Enhancingour Enhancing ourrelationships relationshipswith withcurrent currentcustomers customers 92
Slide 94: Executing on the Strategy: New Business
Executing on the Strategy New Business $152 ($’s in millions) NewDistributors New Distributors 8% 8% Added Lines to Existing Customers 10% New Product 12% $58 Increased Opportunity 70% $94 Average 1Q - 3Q 2006 Average 4Q 2006 - 1Q 2007 Driversof Drivers ofincreased increasednew newbusiness businesss
Slide 95: Distribution Advantage
Distribution Advantage New Commercial Accounts Distributors ($s in millions) New Business from Travelers Appointed Agents Who Previously Had No Commercial Accounts Relationship $12.9 $9.5 New Business $6.2 Average 1Q-3Q 4Q 2006 1Q 2007 2006 Maximizingthe Maximizing thepower powerof ofthe thefranchis
Slide 96: Creating More Opportunities: New Business Submissions
Creating More Opportunities New Business Submissions Number of Submissions c rea se 32% I n 4Q 2005 1Q 2006 2Q 2006 3Q 2006 4Q 2006 1Q 2007 95
Slide 97: Disciplined Execution
Disciplined Execution ¾ 100% transaction decisions made by an experienced underwriter ¾ Over 75% of new business written involves additional underwriting review ¾ Over 90% of all new business pre-inspected by risk control New Business Quote Ratio New Business Close Ratio Submissions Quoted % of New
Slide 98: Disciplined Execution Metrics and Analytics
Disciplined Execution Metrics and Analytics Metrics ¾ Profitability ¾ Production Retention New business New and renewal pricing Submission volume Quote ratios Close ratios ¾ Pricing segmentation ¾ Loss trends 4Q 2006 RPC1 Frequency Severity Region ABC -7.1% Catastrophe Vs. ¾ Expens
Slide 99: Disciplined Execution Metrics and Analytics
Disciplined Execution Metrics and Analytics Metrics ¾ Profitability ¾ Production Retention New business New and renewal pricing Submission volume 21% 20% 12% Quote ratios Close ratios ¾ Pricing segmentation ¾ Loss trends Frequency Severity Catastrophe ¾ Expenses Views ¾ By Region ¾
Slide 100: Disciplined Execution Metrics and Analytics
Disciplined Execution Metrics and Analytics Metrics ¾ Profitability ¾ Production Retention New business New and renewal pricing Submission volume Quote ratios Close ratios ¾ Pricing segmentation ¾ Loss trends Frequency Severity Catastrophe 4Q 2006 RPC ¾ Expenses Views Office 2 -11.
Slide 101: Disciplined Execution Metrics and Analytics
Disciplined Execution Metrics and Analytics Metrics ¾ Profitability ¾ Production Retention New business New and renewal pricing Submission volume Quote ratios Close ratios ¾ Pricing segmentation ¾ Loss trends 4Q06 RPC Frequency Severity Catastrophe Office 2, Line 2 -16.4% ¾ Expense
Slide 102: Disciplined Execution Metrics and Analytics
Disciplined Execution Metrics and Analytics Metrics ¾ Profitability ¾ Production Retention New business New and renewal pricing Submission volume 13% 28% 12% Quote ratios Close ratios ¾ Pricing segmentation ¾ Loss trends Frequency Severity Catastrophe ¾ Expenses Views ¾ By Region ¾
Slide 103: Disciplined Execution Metrics and Analytics
Disciplined Execution Metrics and Analytics Metrics ¾ Profitability ¾ Production Retention New business New and renewal pricing Submission volume Quote ratios Close ratios ¾ Pricing segmentation ¾ Loss trends Frequency Severity 1Q 2007 RPC Catastrophe ¾ Expenses Region ABC -0.6% Vi
Slide 104: Our Competitive Advantage
Our Competitive Advantage ¾ Our underwriting process is disciplined and fact-based Our data and business analytics drive superior risk selection and pricing ¾ Our breadth of capabilities and expertise are unmatched in the industry ¾ These capabilities allow us to find opportunities We can out-pe
Slide 105: Questions?
eee a TRAVELERS J
Slide 106: Financial Management & Balance Sheet Strength
Financial Management & Balance Sheet Strength Jay S. Benet Vice Chairman & Chief Financial Officer Scott Belden Senior Vice President Reinsurance 105
Slide 107: Financial Management and Balance Sheet Strength
Financial Management and Balance Sheet Strength ¾ Financial Oversight Travelers finance organization Monthly operating reviews Monthly Management Committee discussion of operating results Quarterly actuarial reviews ¾ Capital Management Operating company capital Catastrophe management an
Slide 108: Financial Oversight Embedded Throughout the Company
Financial Oversight Embedded Throughout the Company Jay S. Benet CFO Financial Enterprise Accounting Internal Audit Controller Planning & Treasury Actuarial Tax Reinsurance Risk Policy (Administrative) Analysis Management Business Personal Enterprise Operations & FP&I Insurance Claim Insurance Insur
Slide 109: Financial Oversight Embedded Throughout the Company
Financial Oversight Embedded Throughout the Company Jay S. Benet CFO Financial Enterprise Accounting Internal Audit Controller Planning & Treasury Actuarial Tax Reinsurance Risk Policy (Administrative) Analysis Management Business Personal Enterprise Operations & FP&I Insurance Claim Insurance Insur
Slide 110: Financial Oversight Embedded Throughout the Company
Financial Oversight Embedded Throughout the Company Jay S. Benet CFO Financial Enterprise Accounting Internal Audit Controller Planning & Treasury Actuarial Tax Reinsurance Risk Policy (Administrative) Analysis Management Business Personal Enterprise Operations & FP&I Insurance Claim Insurance Insur
Slide 111: Monthly Finance Operating Review
Monthly Finance Operating Review Detailed examination of performance relative to plan, mid-year forecast and outlooks as well as prior year actual ¾ Net Investment Income analysis ¾ Business Segment Analysis ($ in millions) Income Statement line item review Gross Business Unit X Income Statement
Slide 112: Management Committee
Management Committee Monthly Discussion of Operating Results ¾ Two to four hours of interactive discussions led by CFO ¾ Based on data, observations and insights from monthly operating reviews ¾ Over 100 pages of detailed financial results, trends and analyses Sample pages: Business Unit X – Produ
Slide 113: Quarterly Actuarial Process
Quarterly Actuarial Process ¾ Over 125 individuals participate in quarterly actuarial review process ¾ Includes line area actuaries and chief financial officers ¾ Approximately 175 markets by product line level are reviewed ¾ Separate evaluation of prior year reserves and current year loss picks ¾ D
Slide 114: Reserve Comparisons
Reserve Comparisons ¾ The following exhibits provide a comparison of certain Travelers net paid-to- incurred ratios and net IBNR-to-incurred ratios with the industry and a peer group. Travelers information comes from the 2006 combined annual statutory statement of The Travelers Companies, Inc. whi
Slide 115: Net Paid to Incurred Ratios – 2006 Industry Comparison
Net Paid to Incurred Ratios – 2006 Industry Comparison Accident Workers' Compensation Accident Private Passenger Auto Liability Accident Commercial Auto 1 1 1 Year Peer Travelers Industry Year Peer Travelers Industry Year Peer Travelers Industry 1997 84.0% 75.5% 86.3% 1997 99.7% 99.5% 99.6% 1997 98.
Slide 116: Net IBNR to Incurred Ratios – 2006 Industry Comparison
Net IBNR to Incurred Ratios – 2006 Industry Comparison Accident Workers' Compensation Accident Private Passenger Auto Liability Accident Commercial Auto 1 1 Year Peer Travelers Industry Year Peer Travelers Industry Year Peer 1 Travelers Industry 1997 5.5% 8.4% 4.7% 1997 0.3% 0.3% 0.2% 1997 0.5% 0.3%
Slide 117: Financial Objective – Create Shareholder Value
Financial Objective – Create Shareholder Value ¾ Achieve mid-teens return on equity over time ¾ Responsibly grow market share over time ¾ Flexibility/capacity to absorb severe events, e.g., major catastrophes ¾ Maintain solid claims paying/financial strength ratings A.M. Best: A+ S&P, Moody’s an
Slide 118: Managing Our Catastrophe Exposure
Managing Our Catastrophe Exposure ¾ Rigorous risk/return analysis at the local and business unit level Continually assess capital costs for risk concentrations ¾ On-going underwriting strategies across geographies and business units to optimize risk/return equation ¾ Catastrophe exposure update
Slide 119: Probable Maximum Catastrophe Loss Estimates
Probable Maximum Catastrophe1 Loss Estimates2 Probable Maximum Loss ($ in billions) (Net of Reinsurance, After Tax) Likelihood of Single Single 3 Exceedence Hurricane Earthquake 2.0% (1-in-50) $ 1.2 $ 0.3 1.0% (1-in-100) 1.9 0.5 0.4% (1-in-250) 2.7 0.8 Probable Maximum Loss (Net of Reinsurance, Afte
Slide 120: Assumption for Current Catastrophe Modeling Estimates
Assumption for Current Catastrophe Modeling Estimates1 ¾ Updated for 2006 RMS v6.0 catastrophe model ¾ Continue to include estimates for hurricane exposures not incorporated in the model ¾ Utilized current reinsurance program which expires June 30, 2007 Reinsured 27.6% of $500 million excess of $1
Slide 121: Regional Distribution of Travelers Catastrophe Exposure
1 Regional Distribution of Travelers Catastrophe Exposure 1 1 Average Annual Average Annual Loss (AAL)1 Loss (AAL) Tail Value Tail Value at at Risk (TVAR)1 Risk (TVAR) Gulf Gulf Hurricane Hurricane Mid-Atlantic Mid-Atlantic Hurricane Hurricane Northeast Hurricane Northeast Countrywide Countrywide Hu
Slide 122: Catastrophe Reinsurance Marketplace
Catastrophe Reinsurance Marketplace ¾ Capacity There is insufficient capacity across the global reinsurance marketplace relative to severe catastrophe exposures in the industry ¾ Pricing Current market pricing reflects a healthy balance of supply and demand leading to growing capacity and rational,
Slide 123: Longpoint Re, Ltd. & Catastrophe Bond Issuance
Longpoint Re, Ltd. & Catastrophe Bond Issuance ¾ Special purpose vehicle (SPV) reinsurer Set up to issue bonds and sell reinsurance to Travelers ¾ Initial issuance of $500 million for 3 years ¾ Coverage territory NJ, PA, NY, CT, RI, MA, NH, ME, VT ¾ Coverage trigger Index created by weighting
Slide 124: Catastrophe Bonds vs. Traditional Reinsurance
Catastrophe Bonds vs. Traditional Reinsurance ¾ Positives Multi-year coverage with fixed pricing Transparent coverage trigger Fully collateralized limit Diversified source of reinsurance capital ¾ Negatives Basis risk Single limit of protection – no reinstatement Transactional costs an
Slide 125: Catastrophe Management at Travelers
Catastrophe Management at Travelers ¾ We have been a profitable property insurance underwriter ¾ Our catastrophe exposure is appropriately sized as compared to our capital position ¾ The sustainability of our property insurance business is not dependent on catastrophe reinsurance ¾ We believe we can
Slide 126: Operating Company Surplus
Operating Company Surplus ¾Determined by capital adequacy ratios and ratings targets Rating agency capital models NAIC risk-based capital Internal capital models ¾Statutory surplus of $21.2 billion: ($’s in billions) $25 $20.9 $21.2 $17.8 20 $15.1 15 10 5 0 2004 December 2005 December 2006 Dec
Slide 127: Claims Paying/Financial Strength Ratings
Claims Paying/Financial Strength Ratings A. M. Best S&P Moody's Fitch Chubb A++ AA Aa2 AA Cincinnati Financial A++ AA- Aa3 AA AIG A+ AA+ Aa2 AA+ Progressive A+ AA+ Aa2 AA+ Allstate A+ AA Aa2 AA+ Travelers A+ AA- Aa3 AA Outlook Stable Stable Positive Stable Hartford A+ AA- Aa3 AA XL Capital A+ A+ Aa3
Slide 128: Holding Company Leverage
Holding Company Leverage ¾Debt to total capital ratio of 19.7% compared to our targeted 20% ¾Effective laddering of maturities (reflects retirement of CoCos and hybrid issuance): $1.5 ($’s in billions) 1.2 $1.0 .9 $.6 $.6 .6 $.5 $.5 $.4 $.4 $.4 $.3 .3 $.2 $.1 $.1 < $.1 <$.1 <$.1 - 2007 2008 2009 201
Slide 129: Holding Company Liquidity
Holding Company Liquidity ¾Holding company liquidity target - one year of interest and dividends ¾Holding company liquidity of $1.7 billion: ($’s in millions) $2,000 $1,690 $1,570 $1,447 1,600 1,200 Target $1,100 800 $223 400 0 2004 2005 2006 39142 December December December March 2004 2005 2006 200
Slide 130: Returning Excess Capital to Shareholders
Returning Excess Capital to Shareholders ¾On May 2, 2007, quarterly dividend increased by $0.03, or 12%, to $0.29 per common share Dividend yield of 2.1% Payout ratio of 20%1 ¾Board authorized repurchase program of $5.0 billion Repurchases since commencement of program in 2Q 2006: Cumulative (
Slide 131: All Financial Strength Targets Achieved
All Financial Strength Targets Achieved ($’s in millions) Mar 31, Dec 31, Target 2007 2006 1 Shareholders' equity $ 24,918 $ 24,682 Share repurchases YTD $ 725 $ 1,121 1 Debt to total capital 20.0% 19.7% 18.9% Statutory surplus $ 21,204 $ 20,945 Travelers estimate of 2 2 A.M. Best BCAR 230% 235% 235
Slide 132: Primary Objective: Creation of Shareholder Value
Primary Objective: Creation of Shareholder Value Book Value Per Share1 rowth$36.20 $40 24% G $37.26 $31.47 35 $30.05 30 25 20 15 10 December 2004 December 2005 December 2006 March 39142 Tangible Book Value Per Share1 2004 2005 2006 2007 $40 row th 35 32% G $30.21 $30.91 $25.44 30 $23.46 After After
Slide 133: Financial Objective – Create Shareholder Value
Financial Objective – Create Shareholder Value ¾ Achieve mid-teens return on equity over time ¾ Responsibly grow market share over time ¾ Flexibility/capacity to absorb severe events, e.g., major catastrophes ¾ Maintain solid claims paying/financial strength ratings A.M. Best: A+ S&P, Moody’s an
Slide 134: Questions?
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Slide 135: Appendix: Catastrophe Loss Estimate Disclosure
Appendix: The information in this presentation regarding probable maximum catastrophe loss estimates includes output from analytical modeling related to the probability and potential losses associated only with hurricanes and earthquakes, each of which are inherently unpredictable events. Management
Slide 136: Investor Day Meeting May 22, 2007
Investor Day Meeting May 22, 2007 135