Financial Analysis

TRAVELERS COMPANIES, INC. – 10-Q – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of the Company’s financial condition
and results of operations.

FINANCIAL HIGHLIGHTS

2021 Third Quarter Consolidated Results of Operations

•Net income of $662 million, or $2.65 per share basic and $2.62 per share
diluted
•Net earned premiums of $7.83 billion
•Catastrophe losses of $501 million ($395 million after-tax)
•Net unfavorable prior year reserve development of $56 million ($44 million
after-tax)
•Combined ratio of 98.6%
•Net investment income of $771 million ($645 million after-tax)
•Net realized investment gains of $8 million ($7 million after-tax)
•Operating cash flows of $2.54 billion

2021 Third Quarter Consolidated Financial Condition

•Total investments of $87.51 billion; fixed maturities and short-term securities
comprised 93% of total investments
•Total assets of $120.71 billion
•Total debt of $7.29 billion, resulting in a debt-to-total capital ratio of
20.4% (22.0% excluding net unrealized investment gains, net of tax)
•Total capital returned to shareholders of $821 million, comprising $601 million
of share repurchases and $220 million of dividends
•Shareholders' equity of $28.47 billion
•Net unrealized investment gains of $3.43 billion ($2.70 billion after-tax)
•Book value per common share of $115.74
•Holding company liquidity of $2.01 billion


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                 THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

                MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

CONSOLIDATED OVERVIEW

Consolidated Results of Operations

                                                                                                     Three Months Ended                   Nine Months Ended
                                                                                                       September 30,                        September 30,
(in millions, except ratio and per share amounts)                                                  2021              2020              2021              2020

Revenues
Premiums                                                                                       $   7,829          $  7,380          $ 22,831          $ 21,564
Net investment income                                                                                771               671             2,290             1,550
Fee income                                                                                            97               101               302               323
Net realized investment gains (losses)                                                                 8                37               113               (48)
Other revenues                                                                                       100                86               269               195
Total revenues                                                                                     8,805             8,275            25,805            23,584

Claims and expenses
Claims and claim adjustment expenses                                                               5,464             4,886            15,479            

14,782

Amortization of deferred acquisition costs                                                         1,281             1,207             3,742            

3,558

General and administrative expenses                                                                1,187             1,109             3,524             3,367
Interest expense                                                                                      87                87               252               256
Total claims and expenses                                                                          8,019             7,289            22,997            21,963
Income before income taxes                                                                           786               986             2,808             1,621
Income tax expense                                                                                   124               159               479               234
Net income                                                                                     $     662          $    827          $  2,329          $  1,387

Net income per share
Basic                                                                                          $    2.65          $   3.24          $   9.24          $   5.44
Diluted                                                                                        $    2.62          $   3.23          $   9.16          $   5.41

Combined ratio
Loss and loss adjustment expense ratio                                                              69.2  %           65.6  %           67.2  %           67.8  %
Underwriting expense ratio                                                                          29.4              29.3              29.6              30.1
Combined ratio                                                                                      98.6  %           94.9  %           96.8  %           97.9  %



The following discussions of the Company's net income and segment income are
presented on an after-tax basis.  Discussions of the components of net income
and segment income are presented on a pre-tax basis, unless otherwise noted.
Discussions of net income per common share are presented on a diluted basis.

Overview

Diluted net income per share of $2.62 in the third quarter of 2021 decreased by
19% from diluted net income per share of $3.23 in the same period of 2020.  Net
income of $662 million in the third quarter of 2021 decreased by 20% from net
income of $827 million in the same period of 2020.  The lower rate of decrease
in diluted net income per share reflected the impact of share repurchases in
recent periods. The decrease in income before income taxes in the third quarter
of 2021 primarily reflected the pre-tax impacts of (i) net unfavorable prior
year reserve development compared to net favorable prior year reserve
development in the same period of 2020, (ii) higher catastrophe losses
(including recoveries under the Underlying Property Aggregate Catastrophe
Excess-of-Loss Reinsurance treaties) and (iii) lower net realized investment
gains, partially offset by (iv) higher net investment income and (v) higher
underwriting margins excluding catastrophe losses and prior year reserve
development ("underlying underwriting margins"). Net unfavorable prior year
reserve development in the third quarter of 2021 was $56 million, as compared to
net favorable prior year reserve development in the same period of 2020 of $142
million. Catastrophe losses in the third quarters of 2021 and 2020 were $501
million and $397 million, respectively. The higher underlying underwriting
margins in the third quarter of 2021 were driven by Business Insurance and Bond
& Specialty Insurance, partially offset by Personal Insurance. Underlying
underwriting margins in the third quarters of both 2021 and 2020 included a net
favorable impact from COVID-19 and related economic conditions. Income tax
expense in the third quarter of 2021 was lower than in the same period of 2020,
primarily reflecting the impact of the decrease in income before income taxes.
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                 THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

                MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued


Diluted net income per share of $9.16 in the first nine months of 2021 increased
by 69% over diluted net income per share of $5.41 in the same period of 2020.
Net income of $2.33 billion in the first nine months of 2021 increased by 68%
over net income of $1.39 billion in the same period of 2020.  The higher rate of
increase in diluted net income per share reflected the impact of share
repurchases in recent periods. The increase in income before income taxes
primarily reflected the pre-tax impacts of (i) higher net investment income,
(ii) higher net favorable prior year reserve development, (iii) higher
underlying underwriting margins and (iv) net realized investment gains compared
to net realized investment losses in the same period of 2020, partially offset
by (v) higher catastrophe losses (including recoveries under the Underlying
Property Aggregate Catastrophe Excess-of-Loss Reinsurance treaties). Net
favorable prior year reserve development in the first nine months of 2021 and
2020 was $443 million and $171 million, respectively. Catastrophe losses in the
first nine months of 2021 and 2020 were $1.81 billion and $1.58 billion,
respectively. The higher underlying underwriting margins in the first nine
months of 2021 were driven by Business Insurance and Bond & Specialty Insurance,
partially offset by Personal Insurance. Underlying underwriting margins in the
first nine months of both 2021 and 2020 reflected a net favorable impact from
COVID-19 and related economic conditions. Income tax expense in the first nine
months of 2021 was higher than in the same period of 2020, primarily reflecting
the impact of the increase in income before income taxes.

For discussion regarding the impact of COVID-19 and related economic conditions
on the Company's results for the year ended December 31, 2020, see "Part II-Item
7-Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's 2020 Annual Report. For further discussion
regarding the potential future impacts of COVID-19 and related economic
conditions on the Company, see "Outlook" herein and "The impact of COVID-19 and
related risks could materially affect our results of operations, financial
position and/or liquidity" included in "Part I-Item 1A-Risk Factors" in the
Company's 2020 Annual Report.

The Company has insurance operations in Canada, the United Kingdom, the Republic
of Ireland and throughout other parts of the world as a corporate member of
Lloyd's, as well as in Brazil and Colombia through joint ventures.  Because
these operations are conducted in local currencies other than the U.S. dollar,
the Company is subject to changes in foreign currency exchange rates. For the
three months and nine months ended September 30, 2021 and 2020, changes in
foreign currency exchange rates impacted reported line items in the statement of
income by insignificant amounts.  The impact of these changes was not material
to the Company's net income or segment income for the periods reported.

Revenues

Earned Premiums
Earned premiums in the third quarter of 2021 were $7.83 billion, $449 million or
6% higher than in the same period of 2020.  Earned premiums in the first nine
months of 2021 were $22.83 billion, $1.27 billion or 6% higher than in the same
period of 2020. In Business Insurance, earned premiums in the third quarter and
first nine months of 2021 increased by 3% and 2%, respectively, over the same
periods of 2020. Earned premiums in Business Insurance in both periods of 2021
were negatively impacted by lower net written premiums in the preceding twelve
months due to a modest reduction in exposures and a decrease in new business
volume, in each case impacted by COVID-19 and related economic conditions.
Earned premiums in Business Insurance in both periods of 2020 were negatively
impacted by reduced exposures and reductions in the Company's estimate of
ultimate audit premiums receivable, in each case reflecting the impact of
COVID-19 and related economic conditions, including a decrease in new business
levels. In Bond & Specialty Insurance, earned premiums in the third quarter and
first nine months of 2021 increased by 11% and 12%, respectively, over the same
periods of 2020. Earned premiums in Bond & Specialty Insurance in both periods
of 2021 and 2020 were not materially impacted by COVID-19 and related economic
conditions. In Personal Insurance, earned premiums in the third quarter and
first nine months of 2021 increased by 8% and 10%, respectively, over the same
periods of 2020.  Earned premiums in Personal Insurance in both periods of 2021
were not materially impacted by COVID-19 and related economic conditions. Earned
premiums in Personal Insurance in the first nine months of 2020 were reduced by
premium refunds provided to personal automobile customers, primarily in the
second quarter of 2020, in response to COVID-19 and related economic conditions.
Factors contributing to the changes in earned premiums in each segment are
discussed in more detail in the segment discussions that follow.

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                 THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

                MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

Net Investment Income
The following table sets forth information regarding the Company's investments.
                                         Three Months Ended            Nine Months Ended
                                           September 30,                 September 30,
(dollars in millions)                   2021           2020           2021           2020
Average investments (1)              $ 84,647       $ 78,722       $ 82,854       $ 77,304
Pre-tax net investment income             771            671          2,290 

1,550

After-tax net investment income           645            566          1,917          1,336
Average pre-tax yield (2)                 3.6  %         3.4  %         3.7  %         2.7  %
Average after-tax yield (2)               3.0  %         2.9  %         3.1  %         2.3  %

_________________________________________________________

(1)Excludes net unrealized investment gains and losses and reflects cash,
receivables for investment sales, payables on investment purchases and accrued
investment income.
(2)Excludes net realized and net unrealized investment gains and losses.

Net investment income in the third quarter of 2021 was $771 million, $100
million or 15% higher than in the same period of 2020.  Net investment income in
the first nine months of 2021 was $2.29 billion, $740 million or 48% higher than
in the same period of 2020. Net investment income from fixed maturity
investments in the third quarter and first nine months of 2021 was $497 million
and $1.48 billion, respectively, $5 million and $30 million lower, respectively,
than in the same periods of 2020. The decreases primarily resulted from lower
long-term interest rates, partially offset by a higher average level of fixed
maturity investments. Net investment income from short-term securities in the
third quarter and first nine months of 2021 was $2 million and $6 million,
respectively, $4 million and $35 million lower, respectively, than in the same
periods of 2020. The decreases in both periods of 2021 primarily resulted from
lower short-term interest rates. The Company's remaining investment portfolios
had net investment income of $281 million and $834 million in the third quarter
and first nine months of 2021, respectively, $108 million and $807 million
higher, respectively, than in the same periods of 2020. Included in
other investments are private equity, hedge fund and real estate
partnerships that are accounted for under the equity method of accounting and
typically report their financial statement information to the Company one month
to three months following the end of the reporting period. Accordingly, net
investment income from these other investments is generally reflected in the
Company's financial statements on a quarter lag basis. Net investment income
from these investments in the first nine months of 2020 included the impact of
the disruption in global financial markets associated with COVID-19.

Fee Income
Fee income in the third quarter of 2021 was $97 million, $4 million lower than
in the same period of 2020. Fee income in the first nine months of 2021 was $302
million, $21 million lower than in the same period of 2020. The National
Accounts market in Business Insurance is the primary source of the Company's
fee-based business and is discussed in the Business Insurance segment discussion
that follows.
Net Realized Investment Gains (Losses)
The following table sets forth information regarding the Company's net realized
investment gains (losses).
                                                           Three Months Ended                    Nine Months Ended
                                                              September 30,                        September 30,
(in millions)                                            2021               2020               2021              2020
Credit impairment gains (losses):
Fixed maturities                                     $       (1)         $      4          $      (1)         $    (18)
Other investments                                             -                 -                  -               (40)
Net realized investment gains (losses) on
equity securities still held                                 (6)               19                 45               (14)
Other net realized investment gains, including
from sales                                                   15                14                 69                24
Total                                                $        8          $     37          $     113          $    (48)



Net realized investment gains (losses) on equity securities still held of $(6)
million and $45 million in the third quarter and first nine months of 2021,
respectively. Net realized investment gains for the first nine months of 2021
were driven by the impact of changes in fair value attributable to favorable
equity markets. Net realized investment gains (losses) on equity securities
still held of $19 million and $(14) million in the third quarter and first nine
months of 2020 were driven by the impact of changes in
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                 THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

                MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued

fair value attributable to the disruption in global financial markets associated
with the global pandemic beginning in March 2020.

In the second quarter of 2020, the Company recorded a $40 million credit
impairment loss from the other-than-temporary
impairment of the carrying value of a joint venture investment included in other
investments.

Other Revenues
Other revenues in the third quarters and first nine months of both 2021 and 2020
included revenues from Simply Business and installment premium charges.
Installment premium charges in the first nine months of 2020 were reduced by
billing relief actions offered to customers as a result of COVID-19.

Claims and Expenses

Claims and Claim Adjustment Expenses
Claims and claim adjustment expenses in the third quarter of 2021 were $5.46
billion, $578 million or 12% higher than in the same period of 2020, primarily
reflecting the impacts of (i) net unfavorable prior year reserve development
compared to net favorable prior year reserve development in the same period of
of 2020, (ii) higher catastrophe losses, (iii) loss cost trends, (iv) higher
losses in the automobile product line in Personal Insurance due to a comparison
to a low level of loss activity in the prior year quarter as a result of the
pandemic and (v) higher business volumes, partially offset by (vi) lower losses
in the homeowners and other product line in Personal Insurance due to a
comparison to a high level of loss activity in the prior year quarter and (vii)
a lower level of property losses in Business Insurance. Catastrophe losses in
the third quarter of 2021 primarily resulted from Hurricane Ida and severe
storms in several regions of the United States. Catastrophe losses in the third
quarter of 2020 primarily resulted from the derecho windstorm in the midwestern
region of the United States, the Glass wildfire in California, Tropical Storm
Isaias, Hurricane Laura and additional wildfires in the western United States.
The impacts of COVID-19 and related economic conditions on claims and claim
adjustment expenses are discussed in more detail in the segment discussions that
follow.

Claims and claim adjustment expenses in the first nine months of 2021 were
$15.48 billion, $697 million or 5% higher than in the same period of 2020,
primarily reflecting the impacts of (i) higher catastrophe losses, (ii) loss
cost trends, (iii) higher business volumes, (iv) higher losses in the automobile
product line in Personal Insurance due to a comparison to a low level of loss
activity in the prior year period as a result of the pandemic and (v) higher
losses in the homeowners and other product line in Personal Insurance, partially
offset by (vi) higher net favorable prior year reserve development and (vii) a
net favorable impact associated with COVID-19 and related economic conditions in
Business Insurance and Bond & Specialty Insurance compared to a net charge in
the prior year period. Catastrophe losses in the first nine months of 2021
included the third quarter events described above, as well as winter storms and
severe wind and hail storms in several regions of the United States in the first
six months of 2021. Catastrophe losses in the first nine months of 2020 included
the third quarter events described above, as well as tornado activity in
Tennessee and other wind storms and winter storms in several regions of the
United States in the first quarter of 2020 and severe storms in several regions
of the United States and civil unrest in the second quarter of 2020. The impacts
of COVID-19 and related economic conditions on claims and claim adjustment
expenses are discussed in more detail in the segment discussions that follow.

Factors contributing to net prior year reserve development during the third
quarters and first nine months of 2021 and 2020 are discussed in more detail in
note 7 of notes to the unaudited consolidated financial statements.

Significant Catastrophe Losses
The following table presents the amount of losses recorded by the Company for
significant catastrophes that occurred in the three months and nine months ended
September 30, 2021 and 2020, the amount of net unfavorable (favorable) prior
year reserve development recognized in the three months and nine months ended
September 30, 2021 and 2020 for significant catastrophes that occurred in 2020
and 2019, and the estimate of ultimate losses for those catastrophes at
September 30, 2021 and December 31, 2020. For purposes of the table, a
significant catastrophe is an event for which the Company estimates its ultimate
losses will be $100 million or more after reinsurance and before taxes. The
Company's threshold for disclosing catastrophes is primarily determined at the
reportable segment level and for 2021 ranged from $20 million to $30 million of
losses before reinsurance and taxes. For the Company's definition of a
catastrophe, refer to "Part II-Item 7-Management's Discussion and Analysis of
Financial Condition and Results of Operations- Consolidated Overview" in the
Company's 2020 Annual Report.
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