Alan D. Schnitzer

Chairman and Chief Executive Officer

To My Fellow Shareholders

As I write this letter, the world is in a state of emergency due to the COVID-19 pandemic. Across the United States and around the globe, businesses and borders have been closed, flights grounded and quarantine zones established.


By the time you read this, conditions may have improved, or they may have worsened. Foremost in all our minds is the tragic loss of life and human suffering caused by this pandemic. Our thoughts and prayers go out to all those affected. I hope you and your loved ones are, and remain, safe.


Prepared for the Unpredictable

Events like the COVID-19 pandemic are, by their very nature, unpredictable. But with over 160 years of experience as a leading property and casualty insurer, we are well positioned to weather this unprecedented storm as we have weathered so many before. Planning for the unknown and unforeseeable is core to everything we do at Travelers. We have learned to operate with a level of preparedness designed to withstand the inevitable times of crisis. It is in the way we underwrite, the way we invest, the way we control expenses, the way we manage our resources, and the way we assess trends and adjust our strategies accordingly. In that regard, compromising discipline in pursuit of outsized gains during good times can be irresistible for some. But the companies that outperform over time will be the ones that are braced for uncertainty and managed with a long-term perspective.


In short, Travelers is built to take on the challenges of times like these. We balance risk and reward for long-term success because we know we are going to be tested from time to time. As I told our team when, practically overnight, we moved nearly 30,000 employees to remote work arrangements in the face of the pandemic: “We have the talent, the technology, the risk management processes and procedures, and, importantly, the balance-sheet strength and liquidity to manage through this.” But that is not all. In recent days, we have seen the commitment, ingenuity and compassion of our extraordinary workforce on full display. Our employees have stepped up in more ways than I can count – big and small – for our customers, agents and brokers, our communities and one another. I am grateful for their focused professionalism in the face of this crisis, and I have never felt more privileged to call them my colleagues.


During these extraordinary times, we will continue to operate consistent with our long-term financial strategy. With that, let me turn to how we executed on that plan in 2019 and over the past few years.

Starting from a Position of Strength

In 2019, Travelers delivered net income of $2.6 billion and return on equity of 10.5%, a meaningful spread over the 10-year Treasury and our cost of equity. We are steadfast in our view that return on equity over time is the right way to measure our success. Having said that, any strategy to deliver industry-leading returns over time requires a strategy to grow over time. On that note, we are very pleased that the successful execution of our business and marketplace strategies over recent years resulted in record net written premiums of more than $29 billion in 2019, with each of our business segments contributing.


These results are a testament to the strength and resilience of our franchise, built upon the competitive advantages that Travelers employees have developed over decades. That foundation enabled Travelers to deliver strong results in 2019 against the backdrop of what continued to be a demanding environment characterized by persistent low interest rates, continued uncertainty about weather volatility and a challenging tort environment.


We also continued to pursue our ambitious innovation agenda, which is designed to ensure that our competitive advantages remain relevant and differentiating to drive our long-term success. These efforts are largely geared toward positioning Travelers for top-line growth at attractive returns. As I discuss in greater detail below, this past year we saw the benefits from these initiatives in the form of record net written premiums and our lowest expense ratio in more than a decade.

Our 2019 Results

Travelers generated $2.6 billion of net income, an increase of 4% over the prior year, and $9.92 per diluted share, an increase of 7%. Core income³ was $2.5 billion, and core return on equity was 10.9%. Our earnings and strong balance sheet enabled us to grow book value per share by 17% and adjusted book value per share by 6%, after continuing to make important investments in our business and returning $2.4 billion of excess capital to our shareholders through dividends and share repurchases. This year marked the 14th consecutive year in which we increased our dividend. Our ability to generate a significant profit in the current environment, while also investing in our business and returning substantial capital to our shareholders, speaks to the value of our diversified business and our investment expertise.


In 2019, we once again produced strong underlying underwriting profit thanks to continued underwriting excellence and the successful execution of our strategy to create attractive top-line opportunities and to improve productivity and efficiency. The effective execution of our strategy over the past several years to grow the top line, or, as we say internally, “do more,” has been an important contributor to the significant levels of underwriting income we are generating.


Our underwriting expertise is a hallmark of our success, and evaluating risk and reward is at the heart of what we do. Our customers and shareholders can rely on Travelers to identify emerging issues early, respond aggressively to changing conditions as they arise and take action to capitalize on opportunities. For example, we have led the industry in raising awareness of the more challenging tort environment. While we have been actively managing social inflation for some time, the environment deteriorated dramatically over the past year or so even beyond our elevated expectations. We remain confident that this is an industrywide issue and that we are responding appropriately as new data emerges. In this business, it is important to have the right data and analytics, expertise and culture of candor necessary to recognize and address changing conditions quickly.


We continue to execute on our thoughtful and deliberate strategy to deliver industry-leading returns. We are leveraging our advanced data and analytics, and executing on a granular basis to improve pricing, terms and conditions where needed on an account-by-account, class-by-class basis. And, as always, we are also actively managing all other levers of profitability available to us. There are a number of factors that impact our returns beyond rate and loss trend, including risk selection, mix of business, claim and expense initiatives, volume and reinsurance. We will continue to manage all these levers to make sure we are meeting our performance objectives.


Much like our underwriting strategy, successfully balancing risk and reward is also at the heart of our well-defined and consistent investment philosophy. As we have said before, our investment portfolio is managed first and foremost to support our insurance operations and, accordingly, is positioned to meet our obligations to policyholders under a wide range of conditions. To that end, we emphasize risk-adjusted returns and credit quality rather than reaching for yield that is not consistent with the underlying risk. Even in the context of a record low interest rate environment and extremely volatile equity markets, our asset allocation is designed so that the predictable stream of investment income from our fixed income portfolio will provide a firm and reliable foundation for our business. That is the core of our investment philosophy, and we saw the benefits of this approach again this past year. In 2019, our high-quality investment portfolio generated strong net investment income of $2.1 billion after-tax.

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


Succeeding Through the Forces of Change

A few years ago, we laid out a strategy to position Travelers for continued success in the context of the forces of change we have previously identified as impacting our industry – namely, changing consumer expectations, emerging technology trends, more sophisticated data and analytics, and evolving distribution models. In light of these trends, we established key innovation priorities and are investing in capabilities consistent with those priorities. As was the plan, the successful execution of this strategy has contributed to strong top-line performance and improved operating leverage over the past several years and again in 2019.


Strong Top-Line Performance

Turning to the top line, today’s production generates tomorrow’s earned premiums. That is why we are particularly pleased that over the past four years we grew net written premiums at a compound annual rate of 5%, as compared to 2% in the prior years in the decade. Net written premiums were a record $29.2 billion in 2019. Premium growth has been driven by strong production, with high levels of retention, higher pricing and new business all contributing. As to retention, we have a very high-quality book of business, and we are pleased that we have achieved historically high levels of retention across all our businesses in recent years. The higher pricing we have achieved is driven by both higher levels of pure rate and exposure growth. The new business we have added has been in products, industries and geographies that we know well, and has been written through distribution partners with whom we have long and excellent relationships.


In other words, we have pursued growth without compromising our return objectives or changing our risk profile. This is evidenced by our underlying combined ratio, which has remained remarkably consistent over the past decade. In short, we are growing with confidence.


In terms of geography, as I have commented in the past, we continue to believe that geopolitical risk and economic instability around the world are underappreciated today. Accordingly, we like our North America concentration. That is not to say
we do not continue to recognize value and evaluate opportunities outside of North America, but we have set an even higher bar for those opportunities today.


Optimizing Operating Leverage

As we have grown our business, we have also successfully executed on our strategic initiative to improve productivity and efficiency. During 2019, we improved our expense ratio to 29.6%, a 50-basis-point improvement over the prior year. Significantly, as reflected in the following chart, our consolidated expense ratio has improved by more than 7%, from an average of 31.9% during the period from 2010 to 2015 to 29.6% for 2019.


Importantly, we achieved this improvement by leveraging technology investments and workflow enhancements and not by depriving our business of important investments. Achieving further productivity and efficiency gains remains a strategic priority for us, as it provides us with important flexibility. By improving operating leverage, we can invest further in our strategic priorities, let the benefit fall to the bottom line and/or be more competitive on pricing without compromising our return objectives.


Growing Our Investment Portfolio

Another significant benefit of our efforts to grow the top line and improve productivity and efficiency is meaningfully higher levels of cash flow from operations. In 2019, we generated cash flow from operations of $5.2 billion, the highest since 2007, and for the past four years, the average annual cash flow from operations has been approximately $1.3 billion higher than the average over the prior six years.


This higher level of cash flow has enabled us to grow our investment portfolio by about $6.4 billion over the past four years (after excluding the impact of changes in net unrealized investment gains (losses)). This increase in invested assets has meaningfully benefited our net investment income in a record low interest rate environment.





Our Diversified Businesses

We engage broadly across nine major lines of insurance through our three business segments – Business Insurance, Bond & Specialty Insurance and Personal Insurance. Our portfolio is balanced across these lines of business and further diversified by geography, customer size and our deep underwriting specialization. Each of our businesses is high performing and contributed meaningfully to our 2019 performance.


Business Insurance

2019 Record Net Written Premiums of $15.6 Billion

Business Insurance produced a solid underlying combined ratio of 96.2%, which included the negative impact of the environmental factors associated with a more aggressive tort environment mentioned above. The segment’s marketplace execution was excellent, with net written premiums up 4% to a record $15.6 billion. In our domestic business, we did this by achieving historically high retentions while delivering almost 7 points of positive renewal premium change for the year, including renewal rate change of almost 4 points, both their highest levels since 2013. We also generated more than $2.1 billion in domestic new business premiums, a 5% increase over the prior year. For the third consecutive year, we grew our domestic customer base (excluding the National Programs business, much of which we put into runoff).


As impressive as those headline numbers are, the texture underlying how we achieved these results is just as compelling. We comment frequently about how we execute in a granular, account-by-account, class-by-class manner. For example, in our core Commercial Accounts business, our segmented execution of rate and retention resulted in a 10-point favorable loss ratio differential between the business we retained and the business we let go in 2019. In other words, through disciplined execution, we keep the business we want after taking appropriate pricing action and do not renew the business that does not meet our return thresholds.


Bond & Specialty Insurance

2019 Record Net Written Premiums of $2.7 Billion

Bond & Specialty Insurance had another excellent year, with a very impressive underlying combined ratio of 81.8%. The segment delivered net written premium growth of approximately 8%, driven by premium growth in both Management Liability and Surety. The domestic Management Liability results reflect record levels of retention and new business. These results are just the latest example of this segment’s remarkable performance over time.


Personal Insurance

2019 Record Net Written Premiums of $10.8 Billion

Personal Insurance results were excellent, with an underlying combined ratio of 91.5%. The segment achieved strong overall net written premium growth of 5% to a record $10.8 billion, driven by high levels of retention, positive renewal premium change and higher levels of new business.


Our balanced portfolio of Auto and Homeowners and our ability to provide a whole account solution continue to be important differentiators for us. Our continued progress reflects the successful execution of our strategy to meet our customers where they are, give them what they need and serve them how they want. One example of this strategy in action is the continued successful rollout of our Quantum Home 2.0® product. Its granular pricing segmentation, customizable coverages and ease of quoting combine to form a solution that is both sophisticated and simple, delivering value to both agents and customers. Quantum Home 2.0 is now available in 36 states and the District of Columbia, contributing to the growth in Homeowners.


Our Claim Excellence

A review of last year’s results would not be complete without acknowledging the continued excellence of our claim response. Our highly sophisticated claim model enables us to handle virtually 100% of our claims under nearly any foreseeable circumstance without resorting to third-party claim handlers, which produces a better experience for our customers and a more efficient outcome for us. Impressively, this year we resolved nearly 95% of our customers’ property claims arising out of catastrophes within 30 days. Our claims-handling ability is more than just a competitive advantage – it lies at the very heart of our promise to take care of the customers and communities we serve. Every day, our claim professionals bring great expertise and dedication to their work, often going above and beyond on behalf of our customers. Their commitment and compassion go a long way toward reassuring customers who are facing challenging circumstances. Our customers and distribution partners often tell us that Travelers’ claim service is a deciding factor in customers’ insurance purchasing decisions. Seeing our Claim organization in action, I have no doubt that is true.


Consistent and Successful Long-Term Financial Strategy Delivers Shareholder Value

It is always important to share our results in the context of what we are 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.


4 Excludes the impact of catastrophes and prior year reserve development.

5 Invested assets excluding net unrealized investment gains (losses) as of December 31.

Underlying Combined Ratio4

Expense Ratio

Invested Assets5

($ in billions)

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 the objective is measured over time because we recognize that interest rates, reserve development and weather, among other factors, impact our results from year to year, and that there are 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 in that environment, a mid-teens return was industry leading. As we have said before, our ability to achieve a mid-teens return over time going forward will depend on interest rates returning to more normal levels by historical standards. In any event, we will always seek to deliver industry-leading returns over time.


Our 2019 return on equity of 10.5% and core return on equity of 10.9% again meaningfully exceeded the average return on equity for the domestic property and casualty industry, which was approximately 8.2% in 2019, according to estimates from Conning, Inc., an insurance asset management firm. As shown in the chart above, our return on equity has significantly outperformed the average return on equity for the industry in each of the past 10 years.


Importantly, over this 10-year period, our return on equity has also been less volatile than that of others in the property and casualty industry. The level and consistency of our return on equity over time reflect the value of our competitive advantages and demonstrate the discipline with which we run our business.


Our Financial Strength

We once again ended the year extremely well capitalized, with only $500 million of debt maturing in the next six years and all our financial strength indicators at or better than our target levels, including a debt-to-capital ratio of 20.2% (21.7% excluding after-tax net unrealized investment gains included in shareholders’ equity), well within our target range of 15% to 25%. Our strong balance sheet and our consistent returns over time have enabled us to grow book value per share and adjusted book value per share each at a compound annual rate of 7% over the last 10 years.


At the same time, we returned a significant amount of excess capital to our shareholders through dividends and share repurchases. Over this 10-year period, we increased our dividend each year and grew dividends per share at an average annual rate of 10%.


Notably, since we began our share repurchase program in 2006, we have returned approximately $45 billion of excess capital to our shareholders, including through $35 billion of share repurchases, which is well in excess of the market capitalization of the company at that time. We repurchased those shares at an average price per share of $67.39.


Our capital management strategy has been an important driver of shareholder value creation over time. We remain firm that 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 premium volumes, as we have for the past few years, we will retain more capital to support that growth. At the same time, we continue to invest in everything from talent to technology to further our innovation agenda and advance our other strategic objectives. Having said that, we are disciplined stewards of our shareholders’ capital, and to the extent that we continue to 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. The capital we return to our shareholders in the form of dividends or share repurchases allows them 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.

Dividends Per Share

Adjusted Book Value Per Share7

7 Excludes net unrealized investment gains (losses), net of tax, included in shareholders’ equity.

Total Shareholder Return

Ultimately, the success of our strategy – with all its component parts – drives our total return to shareholders over time. In these trying times, it is important to remember that we have a long 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; and through both foreseeable economic cycles and more extreme economic conditions. With that in mind, the graph above compares our returns since the financial crisis to the returns for the Dow 30, the S&P 500 and the S&P 500 Financials.


We could not be more confident that executing on our long-term financial strategy, managing Travelers with an over-time discipline and continuing to invest in our competitive advantages is the right approach for building on Travelers’ outstanding record.


Investing in Our Future

Moments of crisis require that we focus our attention on the here and now. And yet, the forces of change also require us to look to, and plan for, the future. Fortunately, our position of strength gives us the ability to do both. In fact, we feel that it is exactly in moments like this that we must focus on our dual imperatives to Perform and Transform.


That is why we are continuing to pursue an aggressive innovation agenda and building a culture of innovation to develop the capabilities we need for the future by leveraging the best from both inside and outside our company. As we have discussed previously, it is not innovation for the sake of innovation; it is innovation in the service of a clear vision to be:


the undeniable choice for the customer and an indispensable partner for our agents and brokers.


In support of that vision, our innovation agenda is focused on three priorities:


  • Extending our advantage in risk expertise;
  • Providing great experiences for our customers, agents and brokers and employees; and
  • Optimizing our productivity and efficiency.


We have the talent and expertise to navigate a rapidly evolving landscape, and we have the scale and resources necessary to innovate and invest for tomorrow while also continuing to deliver industry-leading results today. We believe the winners in our industry will be those with deep domain expertise that can continue to deliver industry-leading results while innovating successfully on top of a foundation of excellence. The value of our deep domain expertise cannot be overstated as the starting point for innovation.


The Travelers Promise

Our sustainability – our ability to maintain our industry-leading position and maximize shareholder value over the long term – depends not only on successfully executing our financial strategy and innovation agenda but also on fulfilling the Travelers Promise. The Travelers Promise is our commitment to take care of our customers, our communities and our employees. This includes providing our customers with the security they need to invest in their families and businesses and being there to help them recover after a disaster. It also includes caring for the communities in which we live and work through good times and bad. We do this by supporting academic and career success, and by promoting the development of thriving neighborhoods and enriched communities. Finally, it is about making Travelers a great place to work for the best talent in the industry and a great partner for our agents and brokers. In the end, the Travelers Promise is about taking care of the people we are privileged to serve.


At Travelers, we have long understood that as stewards of our shareholders’ capital, our responsibility is to create shareholder value. We do not see that mission as separate and apart from the need to uphold the Travelers Promise; we see them as inextricably linked. Only by successfully delivering on our financial strategy and executing our innovation agenda will we earn the resources we need to keep the Travelers Promise. And only by faithfully keeping the Travelers Promise will we earn the support of the key stakeholders essential to creating shareholder value.


I wrote about the link between shareholder value and the Travelers Promise in my annual letter to shareholders last year, and it was with that principle in mind that, in August 2019, I joined 180 other CEOs in signing the Business Roundtable’s Statement on the Purpose of a Corporation. The statement articulates a shared commitment to delivering value to our customers, investing in our employees, dealing fairly and ethically with our suppliers, supporting the communities in which we work and generating long-term value for shareholders. My decision to sign the statement was an acknowledgment of how we have managed our business for decades. In fact, we articulated our long-standing view of sustained value creation earlier in 2019, when we published our first comprehensive sustainability website. I invite you to read more about our holistic approach to sustained value creation at


I am confident that I can speak for my Travelers colleagues when I say that we take great satisfaction in our work – the service we provide to our customers, particularly during difficult times; the livelihood and support we provide to our employees and their families; the contributions we make to our communities; and, of course, the value we create for our shareholders. It is particularly during unique and unprecedented times like this – when people are anxious about what the next day will bring for them – that we show our enduring value. We are well positioned to continue to succeed through these challenging times, and we will continue to serve our customers today and in the brighter days that we are certain are ahead.




It is an honor to lead this great company. I am enormously grateful for the trust of the customers we are privileged to serve and for the confidence of our shareholders. I am also enormously grateful to everyone who works tirelessly to deliver our strong results. Travelers’ success is only possible thanks to the drive and commitment of our employees, the insight and partnership of our agents and brokers, and the leadership and counsel of our Board of Directors.








Alan D. Schnitzer

Chairman and Chief Executive Officer


© 2020 The Travelers Indemnity Company. All rights reserved.

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