In a business where you have thousands of people making individual decisions to put risk on your books and resolve claims, having a strong culture and an affinity for the organization really matters. We see Travelers’ culture as the foundation of our excellence in execution.

In 2022, we delivered very strong top- and bottom-line results in the face of a challenging operating environment, proving once again that we are built to manage whatever comes our way. We generated $3.0 billion* of core income and 11.3% core return on equity despite high levels of inflation and elevated catastrophe losses of $1.5 billion after-tax.

 

We again benefited meaningfully from having a diversified set of businesses. Our Business Insurance and our Bond & Specialty Insurance segments posted exceptional results this past year, while our Personal Insurance segment was heavily impacted by the inflationary environment. Our underwriting and investment results, together with our strong balance sheet, enabled us to return nearly $3.0 billion of excess capital to shareholders, including more than $2.0 billion of share repurchases. At the same time as we returned capital to our shareholders, we grew adjusted book value per share and made important investments in our business. From a top-line perspective, our best-in-class marketplace strategies enabled us to achieve record net written premiums of more than $35 billion for the year, positioning us well for 2023.

 

Our results in 2022 cap off a decade of strong and consistent performance. We have posted a double-digit return on equity in each of the last 10 years, except for 2017, a difficult catastrophe year for the industry (with three hurricanes and wildfires in California), in which we posted a 9% return on equity. In every one of those years, our return on equity comfortably covered our cost of equity. Over the past six years as compared to the prior years in the past decade, we have doubled our rate of growth, sustained strong underlying underwriting margins and meaningfully lowered our expense ratio.

 

This has resulted in higher underlying underwriting income, stronger cash flows and higher levels of invested assets. These results, through different and often challenging economic and market conditions, are the product of a sound strategy and the successful achievement of our strategic objectives.

 

Now, let me turn to a more detailed discussion of our 2022 performance and how we are positioning Travelers for continued success.

 

Our 2022 Results – Excellence in Execution

Travelers generated strong core income of $3.0 billion, or $12.42 of core income per diluted share, producing an industry-leading core return on equity of 11.3%, a meaningful spread above both the 10-year Treasury and our cost of equity.

 

We again delivered very strong underlying underwriting income of $2.1 billion after-tax, driven by record net earned premiums and an underlying combined ratio of 92.0%. Despite the challenging environment, 2022 was the third year in a row that underlying underwriting income has exceeded $2.0 billion. Through higher business volumes and continued strong profitability, we have driven underlying underwriting income to a new, higher level and sustained it there. This result reflects the success we have had executing on our innovation strategy, and demonstrates both the quality of our underwriting and the discipline with which we run our business.

 

We also improved our expense ratio to a record-low 28.5% during the year, a 90-basis-point improvement compared to the prior year and a 10% improvement over the past six years. We achieved this by leveraging our investments in cutting-edge technology and workflow enhancements, and not by depriving our business of important investments. Improving operating leverage continues to be a 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 remained very strong at   $6.5 billion in 2022. This primarily reflects the benefit of continued increases in premium volume and strong profitability. Our cash flow from operations has increased significantly over the last six years, with the average annual cash flow from operations for that period approximately 50% higher than the average for the prior years in the past decade. Strong cash flow enables us to make significant investments in our business, return excess capital to shareholders and grow our investment portfolio. Over that same six years, our investment portfolio, excluding unrealized investment gains (losses), grew by $17 billion, or 24%, to $86.7 billion at year-end.

 

With rates possibly “higher for longer,” net investment income from our fixed income portfolio should continue to grow and meaningfully contribute to our results going forward. Turning to the top line, today’s production generates tomorrow’s earned premiums. In 2022, we delivered record net written premiums of $35.4 billion, up 11% compared to the prior year. This represents the 13th consecutive year of net written premium growth. All three of our business segments contributed meaningfully to this strong top-line performance, with Business Insurance up 10%, Bond & Specialty Insurance up 11% and Personal Insurance up 12%. This premium growth has been driven by high levels of retention, higher pricing and the addition of high-quality new business.

 

Our Investment Expertise

We strive to be thoughtful underwriters on both sides of our balance sheet, and we have always managed our investment portfolio to support our insurance operations, not the reverse. Accordingly, our investment portfolio 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. Our well-defined and consistent investment portfolio has been a meaningful and reliable contributor to our results year in and year out.

 

The performance of our investment portfolio in 2022 underscores the wisdom of our thoughtful and diversified approach. Net investment income was very strong at $2.2 billion after-tax, reflecting higher interest rates and the growth in our fixed income portfolio. While down year over year, as expected, our alternative portfolio continued to perform well, particularly in light of the significant downturn in the broader equity markets that occurred this year.

 

Looking forward, we expect to benefit in 2023 from higher invested assets in our fixed income portfolio and higher interest rates. As inflation has persisted and the Fed has aggressively shifted its policy in response, the yield on new investments is now meaningfully higher than the yield on our maturing investments. With rates possibly “higher for longer,” net investment income from our fixed income portfolio should continue to grow and meaningfully contribute to our results going forward.

 

Our Data-Driven Underwriting Expertise Sets Us Apart

Underwriting excellence is of course key to our success, and there is nothing more critical to underwriting excellence than a culture that values strong performance over time and understands how to balance the art and science of decision making based on data and analytics.

 

Culture alone is a significant competitive advantage, and one that we believe is very hard to replicate. A critical component of our culture is our granular approach to underwriting. In our commercial businesses, that means execution on an account-by-account or class-by-class basis. In personal lines, it means a very high degree of segmentation by risk profile, product and geography. With that and our advanced data and analytics, we thoughtfully select the risks we write and price our products deliberately with our target return in mind.

 

Like every aspect of our business, our focus on performance over time is core to how we manage our catastrophe exposure. Although we are unable to predict what the next event will be or where it will occur, we are taking steps every day to ensure that our portfolio of risk properly contemplates the potential for loss and that we maintain the right balance of risk and reward. While the impact of the risk-based decisions we are making today is not always evident immediately, they will continue to drive our performance over time.

 

 

 

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

Over the past six years, our share of property catastrophe losses relative to total property catastrophe losses for the domestic P&C industry has declined significantly compared to the earlier years in the past decade. Our property catastrophe losses over the past six years have also been meaningfully lower than our corresponding market share.

 

As just one example, we continue to actively manage our coastal underwriting, including through thoughtful risk selection, higher-than-average coastal deductibles and flood sub-limits. These efforts have enabled us to manage our exposure to hurricanes more effectively, significantly benefiting our results over time and again this year. Our performance with respect to Hurricane Ian illustrates the benefits of our thoughtful approach. We estimate that, had we not taken the actions we did to manage our exposure in Florida, our losses from Hurricane Ian would have been nearly three times the amount we actually incurred. This is another good example of why we manage with a long-term focus – wise decisions often take time to show results.

 

Perform and Transform – A Call to Action Put to Work

For a number of years now, our employees have rallied around our Perform and Transform call to action. Perform is about delivering on our objective of industry-leading returns, and Transform is about ensuring that our competitive advantages remain relevant and differentiating into the future.

 

Our competitive advantages, which are meaningful and hard to replicate, fall into five general categories.

 

We start with risk selection, underwriting and pricing segmentation. Understanding risk, and the products and services our customers need to manage risk, has been critical to our success for decades. It is the bedrock of our business.

 

We also stand out in terms of product breadth and specialization. We engage in nine major lines of business through our three business segments. Our portfolio is broad, balanced and diversified.

 

When it comes to distribution, we have the premier position. We go to market through more than 13,000 agents and brokers. We are a top-three writer with the majority of those 13,000 agent and broker partners serviced by 86 field offices, which gives us a local presence in the markets in which we operate. We are a large, international firm, but we can operate on a local basis in the markets where we choose.

 

In terms of risk control, we are industry leading. We have more than 600 risk control professionals and conduct more than 120,000 risk consultations every year. Having done that for many years, we have a proprietary risk database with more than 200 million data points in it. We not only utilize this data in our risk control and risk management activities, we funnel it back into our underwriting, risk selection and pricing, which gives us a significant advantage.

 

Understanding risk, and the products and services our customers need to manage risk, has been critical to our success for decades. It is the bedrock of our business.

 

And, finally, our Claim organization remains a crown jewel of our organization. It is both at the heart of the promise we make to our customers and a significant competitive advantage. Our Claim organization comprises nearly 13,000 professionals, including approximately 750 lawyers who represent our insureds and more than 500 nurses who support injured workers in our workers compensation business, helping them get back on their feet.

 

Underlying these competitive advantages are four key enablers that set us apart – our talent and expertise, industry-leading data and analytics, technology and financial strength. Our competitive advantages and these enablers are foundational to the success of our long-term financial strategy.

 

Nonetheless, we understand clearly that the world is changing, and changing quickly. Given the pace of change, a number of years ago, we were deliberate in identifying four primary forces of change that are relevant to our business: changing consumer expectations, emerging technology trends, increasingly sophisticated data and analytics, and evolving distribution models.

 

Based on our evaluation of how these forces of change were impacting our business, it was clear to us that an ambitious innovation agenda was going to be critical to our future success. With that in mind, we established a clear vision to guide that agenda: to be the undeniable choice for the customer and an indispensable partner for our agents and brokers.

 

That is the clear and simple vision that guides our innovation strategy, and we established three priorities to drive it forward.

First, we seek to extend our advantage in risk expertise. We have been a leading property casualty insurer over many years by being excellent at understanding risk and the products and services our customers need to manage their risk. For us, it is an imperative that we continue to maintain and strengthen this advantage.

 

Next, we are laser-focused on providing great experiences for our customers, distribution partners and employees. We are investing in technologies, capabilities and talent to become faster, nimbler, more digital, more mobile and more personalized.

 

Finally, we are highly focused on optimizing productivity and efficiency. This is not about just tightening the belt; it is about bringing a real strategic lens to the way we think about how we do what we do in an effort to do more with less.

 

In executing on our innovation agenda, over the past five years we have meaningfully increased our overall technology spend. At the same time, through our strategic focus on productivity and efficiency, we have significantly reduced our expense ratio. Importantly, we have also improved the mix of our technology spend, increasing our spending on strategic initiatives by nearly 70% since 2017 while holding routine but necessary expenditures about flat. Given the opportunity to invest and transform the way business is done, we think scale is going to be increasingly important in this business.

 

Technology Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Compounding Benefits of Our Innovation Strategy

When we first articulated our innovation strategy several years ago, we made clear that it was designed in large part to position us to grow over time at leading returns. The charts on the facing page illustrate this strategy at work and its compounding, multiyear benefit. We have doubled our rate of growth, sustained strong underlying underwriting margins and lowered our expense ratio.

 

That has resulted in higher underlying underwriting income, stronger cash flows and higher levels of invested assets.

 

We have not grown by underpricing the product or by changing our risk profile. We have grown by investing in franchise value and through great execution by our colleagues in the field. Importantly, the business that we are putting on the books is coming from products, geographies, classes of business and distribution partners that we know well, which gives us great confidence in the quality of the business we are writing.

 

Consistent and Successful Long-Term Financial Strategy Delivers Shareholder Value

It is important to consider our strategic initiatives and financial results in the context of what we are ultimately trying to achieve. At Travelers, our simple and unwavering mission for creating shareholder value is to:

 

•  Deliver superior returns on equity by leveraging our competitive advantages;
•  Generate earnings and capital substantially in excess of our growth needs; and
•  Thoughtfully rightsize capital and grow book value per share over time.

 

The results we deliver are due to our deliberate and consistent approach to creating shareholder value. We have been clear for many years that one of our crucial responsibilities is to produce an appropriate return on equity for our shareholders. This has meant developing and executing financial and operational plans consistent with our goal of achieving superior returns, which we defined many years ago as a mid-teens core return on equity over time. We emphasize that this objective is measured over time because we recognize that the macroeconomic environment, loss cost trends, weather, and geopolitical and other factors impact our results from year to year, and that there will be years – or longer periods – and environments in which a mid-teens return is not attainable. In that regard, we established the mid-teens goal at a time when the 10-year Treasury was yielding around 5%, and mid-teens was simply the quantification of what qualified as an industry-leading return in that environment. While the 10-year Treasury rate increased during 2022, this increase will take time to earn into our fixed income portfolio, with less than 10% of the fixed income portfolio maturing each year. Our ability to achieve a mid-teens return over time going forward will depend, in part, on the interest rate environment. In any event, we always seek to deliver industry-leading returns over time.

Notably, since we began our share repurchase program in 2006, we have returned approximately $53 billion of excess capital to our shareholders, including through $40 billion of share repurchases – well in excess of the market capitalization of the company at that time. Just by virtue of our share repurchase program, your percentage ownership of Travelers increased 4% during 2022 alone. If you owned Travelers stock when we began our share repurchase program in 2006, your percentage ownership has increased by approximately 300%. These percentage increases were even higher if you participated in our dividend reinvestment program.

 

Our capital management strategy has been an important driver of shareholder value creation over time. Our first objective for the capital we generate is to reinvest it in our business – organically and inorganically – to create shareholder value. For example, as we continue to grow our top line, as we have for the past few years, we will retain more capital to support that growth. Also, we continue to invest in everything from talent to technology to further our ambitious innovation agenda, advance our strategic objectives and drive tomorrow’s performance.

 

Having said that, we are disciplined stewards of our shareholders’ capital. To the extent that we generate capital that we cannot reinvest consistent with our objective of generating industry-leading returns over time, we will manage it the same way we have for more than a decade – by returning it to our shareholders through dividends and share repurchases. By returning excess capital to our investors, we give them the ability to allocate their investment dollars as they see fit, including by investing in companies with different growth profiles or capital needs, thereby efficiently allocating capital across the economy. Over time, that efficient allocation of capital in the marketplace contributes to a stronger economy.

 

Total Shareholder Return

Ultimately, it is the success of our strategy – with all its component parts – that drives our total return to shareholders over time. It is important to remember that we have a well-established track record of managing the company to create value over the long term, through periods of weather volatility; through anticipated and unanticipated developments impacting loss trends; through both foreseeable and unforeseeable economic cycles; and through any number of more extreme economic, geopolitical and other conditions. With that in mind, the graph below compares our returns since the 2008 financial crisis to the returns for the Dow 30, the S&P 500 and the S&P 500 Financials.

Our stock performance reflects the execution of our long-term strategy. We provide our shareholders with industry-leading returns, low volatility and high credit quality. The success of this long-term strategy is evident in the strong performance of our stock over time, which has been remarkably consistent relative to many others in the P&C industry. Viewing our performance through this long-term lens, we are as confident as ever that executing on our long-term financial strategy, managing Travelers with an over-time discipline and continuing to invest in our competitive advantages through our ambitious and focused innovation agenda is the right approach for building on Travelers’ outstanding record.

 

The Foundation of Our Competitive Advantages: Our People and Our Culture

Our performance this year and over time is a testament to the quality and dedication of our people, our collective commitment to excellence and our unique culture that supports our success.

 

At Travelers, our people are our greatest asset. They drive our performance and fuel our ambitious innovation agenda. Their talent and expertise are critical to maintaining all our competitive advantages in a rapidly evolving business landscape.

 

Our appreciation of these dynamics is at the heart of our human capital strategy, motivating everything from our efforts to develop and retain top talent to our commitment to diversity and inclusion.

 

At Travelers, our people are our greatest asset. They drive our performance and fuel our ambitious innovation agenda. Their talent and expertise are critical to maintaining all our competitive advantages in a rapidly evolving business landscape.

 

To that end, in light of a few significant demographic trends at the moment, we are more focused than ever on our talent management and recruitment strategies. During the so-called Great Resignation, we have had an elevated level of attrition just like everyone else has, but since the Great Resignation started, we have hired more people than we have lost. In other words, on a net basis, people are choosing Travelers. Importantly, while our recent level of attrition is above our pre-pandemic average, our recent and more elevated attrition is still lower than our peer group’s pre-pandemic average.

 

With an influx of new talent, higher levels of retirement eligibility as the Baby Boom generation ages, and new ways of working, maintaining and strengthening our world-class culture is a top priority for us. In a business where you have thousands of people making decisions to put risk on your books and resolve claims, having a strong culture and an affinity for the organization really matters. We see Travelers’ culture as the foundation of our excellence in execution.

 

By maintaining and strengthening our foundational cultural values with the same long-term perspective that we bring to everything we do, we will continue to leverage the expertise developed over years of experience while, at the same time, capitalizing on the fresh ideas of new talent. In short, we recognize that preserving our culture is mission-critical to maintaining our competitive advantages and delivering shareholder value over time.

 

The Travelers Promise in Action

Travelers’ sustainability – our ability to maintain our industry-leading position and maximize shareholder value over the long term – depends on the successful execution of our financial strategy as I described above. That is the flywheel that sets everything we do in motion. But it is only one component of our comprehensive approach to value creation over time.

 

The other is our commitment to taking care of the people we are privileged to serve: our customers, our communities and our employees. Or, as we refer to it, the Travelers Promise. We keep this promise in many ways, including by being there to help our customers recover after a disaster strikes; by giving them the security they need to invest in their families and businesses; and by caring for the communities in which we live and work where we focus on promoting academic and career success, thriving neighborhoods and cultural enrichment. All of these efforts depend on ensuring that Travelers remains both a great place to work for our diverse workforce and an indispensable partner for our agents and brokers.

 

The Travelers Promise is rooted in the same long-term thinking that motivates everything we do, and it drives a virtuous cycle in our mission to create long-term shareholder value. Only by faithfully keeping the Travelers Promise will we earn the support of key stakeholders essential to creating shareholder value. And only by successfully creating shareholder value will we earn the resources we need to keep the Travelers Promise. I invite you to read about the ways in which we are fulfilling the Travelers Promise on our comprehensive sustainability site: sustainability.travelers.com.

 

Citizen Travelers

Travelers’ success for more than 160 years is owed, in large part, to keeping that promise. But we do not take for granted that our ability to fulfill our promise rests upon the environment in which we operate: a representative democracy, built on resilient public institutions and an economic system governed by the rule of law. That is why, at Travelers, we take seriously our role in preserving these institutions and our responsibility to help pass them on to future generations.

 

One of the ways we are embracing this commitment is through Citizen Travelers, our nonpartisan initiative to empower our employees to take part in the civic life of their communities. Through Citizen Travelers, we are supporting and encouraging our employees’ participation in local civic institutions and working with organizations that support an informed electorate. The effort includes everything from personalized reminders to our employees to register to vote for upcoming national and local elections, to supporting our colleagues in running for, and serving in, elected positions.

 

At its core, Citizen Travelers is a recognition that the future success of our business and the outlook for inclusive prosperity in our communities depend on our coming together to preserve and strengthen the democratic system we share.

 

As the leader of a company 30,000 strong, operating across all 50 states, I see every day the power of common purpose to unite people across distance and differences. Our sense of shared responsibility drives us, and I believe it can unify our communities, too.

 

Our industry serves as an even larger example of the promise of partnership. We manage risk by bringing together people from different walks of life to pool capital. When customers send us a premium payment, they do not ask who their fellow policyholders voted for, where they worship or where their family came from. Instead, with every renewal, they send the message: “Whoever you are, I have your back. And thanks for having mine.” That shared approach to managing risk is what gives the manufacturer the confidence to add one more shift to the line. The baker to open a second shop on the other side of town. And the young couple to buy a new car with a third row of seats for a growing family. Bringing people together so that we can all aim higher and dream bigger – that is the essence of our industry.

 

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I am enormously grateful to my colleagues for their unwavering commitment to all that we stand for; to our agents and brokers for their tremendous partnership and friendship; to our customers and shareholders for their trust and confidence; and to our Board of Directors for their wisdom and support. It is a privilege to lead this great company.

 

 

 

 

 

 

 

Alan D. Schnitzer

Chairman and Chief Executive Officer