The Travelers Companies, Inc. · NYSE:TRV
The Travelers Companies — Lehman Brothers Global Finance Services Conference 2008
21 slides from The Travelers Companies's conference presentation, Sep 10, 2008
Slide 1: Managing Risk
Managing Risk Jay S. Fishman Chairman & Chief Executive Officer Lehman Brothers Conference September 10, 2008
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: Mission
Mission Balanced Generation of approach to Meaningful and top tier earnings rightsizing sustainable and capital competitive substantially in capital and advantages excess of growth growing book needs value per share over time Create Shareholder Create Shareholder Value Value Objective:Mid Objective:
Slide 4: Travelers: An Industry Leader, With Strong Performance
Travelers: An Industry Leader, With Strong Performance OperatingReturn Operating Returnon onEquity Equity 9.6% 17.9% 17.7% 14.9% 12% ¾ 2005 through 1st half of 2008 10.6% 11.1% 11.0% operating return on equity of 10% 1.4% 1.4% 1.6% approximately 15% 9.1% 0.3% 8% 6.8% ¾ Very strong financial position
Slide 5: Risk Management Embedded in the Corporate Culture
Risk Management Embedded in the Corporate Culture Investment Insurance Liquidity & Capital Legal & Operational Regulatory 4
Slide 6: What Are Our Risks and How Do We Manage Them
What Are Our Risks and How Do We Manage Them Investment Insurance Liquidity & Capital Legal & Operational Regulatory 5
Slide 7: Insurance Risk: Diversified Business Profile
Insurance Risk: Diversified Business Profile ¾ Personal Insurance Select • Standard and preferred markets Accounts Commercial Accounts ¾ Select Accounts • Small commercial business Homeowners & Other • Average premium size: $6,000 Industry Focused Underwriting ¾ Mid-size, individually underwritten •
Slide 8: Insurance Risk: Characteristics of Flow Business
Insurance Risk: Characteristics of Flow Business ¾ High volume, low transaction size ¾ Pricing and marketing advantages through predictive modeling techniques ¾ Sophisticated technology platforms with built in risk evaluation and pricing • Speed and ease of doing business are critical • Objective: B
Slide 9: Insurance Risk Management: Underwriting Process
Insurance Risk Risk Management: Underwriting Process ¾ Well defined risk appetite ¾ Individual underwriter limits ¾ CURE process: a formal, collaborative underwriting review Disciplinedand Disciplined andthoughtful thoughtfulrisk riskselection selectionprocess process 8
Slide 10: Insurance Risk Management: Underwriting Process
Insurance Risk Risk Management: Underwriting Process ¾ Thoughtful reinsurance program • Designed to reduce severity per individual loss and/or aggregate exposure • Largely a “gross line” underwriter • Limited reliance on property catastrophe reinsurance ¾ Extensive detailed data and sophisticated an
Slide 11: Disciplined Underwriting Driven by Extensive Analytics
Insurance Risk Disciplined Underwriting Driven by Extensive Analytics Productprofitability Product profitabilityanalysis analysisbased basedupon uponrisk riskadjusted adjustedcapital capital Select Field CAG - Field / Pgms Other Oper. Comb. Oper. Comb. Oper. Comb. Profit % Ratio Profit % Ratio Profi
Slide 12: Risk Management: Insurance Oversight
Risk Management: Insurance Oversight Managementrisk Management riskcommittee committee Broadrepresentation Broad representationof oforganization: organization:40 40members members Considerscurrent Considers currentand andemerging emerginginsurance insuranceissues issues RiskCommittee Risk Committeeo
Slide 13: What Are Our Risks and How Do We Manage Them
What Are Our Risks and How Do We Manage Them Investment Insurance Liquidity & Capital Legal & Operational Regulatory 12
Slide 14: Investment Philosophy
Investment Philosophy ¾ Investment operations support the insurance operations • High quality fixed income return is factored into insurance pricing decisions • Ensure the company’s ability to meet its liabilities to policyholders and other creditors • Disciplined, long-term risk / return analysis d
Slide 15: Investment Portfolio
Investment Portfolio ($ in billions) Private Equities Hedge Funds Equity Securities Real Estate & Other 6% Mortgage Loans Jun 30, Dec 31, <0.1% 2008 2007 Taxable fixed maturities $ 25.1 34% $ 26.3 35% Short - term Tax-exempt fixed maturities 38.0 52% 38.6 52% 8% Total fixed maturities 63.1 86% 64.9
Slide 16: Financial Strength Unaffected by Recent Market Disruption
Financial Strength Unaffected by Recent Market Disruption Areasof Areas ofMarket MarketDisruption Disruption Status Status ¾ Subprime / Alt-A mortgage-backed Holdings of $290 million - negligible exposure securities ¾ Collateralized debt obligations None ¾ Collateralized loan obligations None ¾ Mono
Slide 17: Risk Management Embedded in the Corporate Culture
Risk Management Embedded in the Corporate Culture Investment Insurance Liquidity & Capital Legal & Operational Regulatory 16
Slide 18: End Result: 2008 S&P Insurance ERM Study
End Result: 2008 S&P Insurance ERM Study1 RatingsDistribution Ratings Distribution S&PAssessment Assessmentofof152 152Insurance InsuranceGroups Groups S&P Adequate With Positive Trend 10% Strong 10% Excellent 4% 71% Adequate 5% Weak Travelersreceived Travelers receivedS&P’s S&P’shighest highestratin
Slide 19: Travelers: An Industry Leader, With Strong Performance
Travelers: An Industry Leader, With Strong Performance OperatingReturn Operating Returnon onEquity Equity 9.6% 17.9% 17.7% 14.9% 12% 10.6% 11.1% 11.0% 10% 1.4% 1.4% 1.6% 9.1% 0.3% 8% 6% 6.8% 6.7% 5.8% 9.2% 9.7% 9.4% 8.8% 4% 2% 0% (1.0%) 2005 2006 2007 1st Half 2008 -2% Fixed investment portfolio inv
Slide 20: 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 are publicly available on the Travelers website (www.travelers.com) 19
Slide 21: End Slide
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