Press Release Details

Operating Income per Diluted Share of $2.52, Up 31% from Prior Year Quarter

Return on Equity and Operating Return on Equity of 13.3% and 14.2%, Respectively

• Net income and operating income of $812 million and $806 million, up 19% and 20%, respectively, from prior year quarter.
• Consolidated combined ratio of 90.8% with strong underwriting results in each business segment.
• Net written premiums of $6.169 billion comparable to prior year quarter. Continued to achieve very strong business retention.
• Total capital returned to shareholders of $995 million in the quarter, including $801 million of share repurchases. Year-to-date total capital returned to shareholders of $1.845 billion, including $1.473 billion of share repurchases.
• Book value per share of $77.51 increased 3% from the prior year quarter end and 1% from year-end 2014. Adjusted book value per share of $73.09 increased 5% and 3%, respectively, from the same dates.
• Board of Directors approves quarterly dividend per share of $0.61.

NEW YORK--(BUSINESS WIRE)-- The Travelers Companies, Inc. today reported net income of $812 million, or $2.53 per diluted share, for the quarter ended June 30, 2015, compared to net income of $683 million, or $1.95 per diluted share, in the prior year quarter. Operating income in the current quarter was $806 million, or $2.52 per diluted share, compared to $673 million, or $1.93 per diluted share, in the prior year quarter. The increase in net and operating income primarily resulted from lower catastrophe losses and a $32 million benefit from the resolution of prior year tax matters, partially offset by lower net investment income. Per diluted share amounts also benefited from the impact of share repurchases.

“We are pleased to report another strong quarter, with operating income of $806 million and operating return on equity of 14.2%,” commented Jay Fishman, Chairman and Chief Executive Officer. “Our results were driven by strong underwriting performance across all of our business segments, as reflected in our consolidated combined ratio of 90.8%, as well as net investment income which was consistent with our expectations. We continue to deploy our capital first by seeking opportunities that offer attractive returns, and then by returning excess capital to shareholders. In the quarter, we returned almost $1 billion to shareholders, including approximately $800 million in share repurchases.

“We remain very pleased with both the stability of the markets in which we compete, as well as how we have executed on our strategies. Given our strong product returns, our goal has been to retain a high percentage of business that meets our return thresholds, to improve profitability where needed, and to actively seek and quote on new business that is consistent with our profitability targets. For the first half of the year, we have achieved our goals as evidenced by historically high retentions, broadly stable renewal pricing, and solid new business. We believe these results demonstrate the value we provide to our agents, brokers, and customers.

“We continue to believe that creating shareholder value is achieved by building meaningful and sustainable competitive advantages which deliver superior returns over time and returning excess capital to shareholders. This strategy has been extremely effective for us, and with our data-driven decisions and relentless focus on execution, we remain well positioned to continue to deliver superior shareholder value.”

Consolidated Results

Second Quarter 2015 Results

(All comparisons vs. second quarter 2014, unless noted otherwise)

Net income of $812 million after-tax and operating income of $806 million after-tax increased $129 million and $133 million, respectively, primarily driven by lower catastrophe losses and a $32 million benefit from the resolution of prior year tax matters, partially offset by lower net investment income.

Underwriting results

• The combined ratio improved 4.3 points to 90.8% due to lower catastrophe losses (3.6 points), higher net favorable prior year reserve development (0.4 points), and a lower underlying combined ratio (0.3 points).
• The underlying combined ratio remained strong, improving 0.3 points to 90.6%.
• Net favorable prior year reserve development occurred in all segments. Catastrophe losses primarily resulted from wind and hail storms in several regions of the United States.

Net investment income of $632 million pre-tax ($503 million after-tax) decreased primarily due to lower private equity and fixed income returns. Private equity returns were particularly high in the prior year quarter and were impacted in the current quarter by lower valuations for energy-related investments. Fixed income returns declined due to lower reinvestment rates and modestly lower fixed income investments that were impacted by the Company’s $579 million payment in the first quarter 2015 related to the settlement of the Asbestos Direct Action Litigation.

Net written premiums of $6.169 billion were comparable to the prior year quarter, benefitting from positive renewal premium changes, strong retention in each business segment, and a significant increase in new business in Personal Insurance, partially offset by the impact of changes in foreign currency exchange rates.

Year-to-Date 2015 Results

(All comparisons vs. year-to-date 2014, unless noted otherwise)

Net income of $1.645 billion after-tax and operating income of $1.633 billion after-tax decreased $90 million and $92 million, respectively, primarily driven by lower net investment income and a lower underlying underwriting gain (i.e., excluding net favorable prior year reserve development and catastrophe losses), partially offset by lower catastrophe losses and the $32 million benefit from the resolution of prior year tax matters. The underlying underwriting gain in the prior year period benefitted from a $49 million after-tax ($76 million pre-tax) reduction in the estimated liability for state assessments to be paid by the Company related to workers’ compensation premiums due to a change in state law.

Underwriting results

• The combined ratio improved 0.6 points to 89.9% due to lower catastrophe losses (1.7 points), partially offset by a higher underlying combined ratio (0.8 points) and lower net favorable prior year reserve development (0.3 points).
• The underlying combined ratio, while remaining strong, increased 0.8 points to 90.4%, due to an increase in the expense ratio (1.1 points). The expense ratio increased primarily due to the inclusion in the prior year period of the above mentioned state assessments benefit (0.6 points).
• Net favorable prior year reserve development occurred in all segments. Catastrophe losses included the second quarter 2015 events discussed above, as well as a winter storm in the eastern United States in the first quarter 2015.

Net investment income of $1.224 billion pre-tax ($981 million after-tax) decreased primarily due to lower private equity returns and fixed income returns. Private equity returns were particularly high in the prior year period and were impacted in the current period by lower valuations for energy-related investments. Fixed income returns declined due to lower reinvestment rates and modestly lower fixed income investments that were impacted by the Company’s $579 million payment in the first quarter 2015 related to the settlement of the Asbestos Direct Action Litigation.

Net written premiums of $12.066 billion increased slightly from the prior year period, benefitting from positive renewal premium changes and an increase in retention and new business, partially offset by the impact of changes in the timing and structure of certain of the Company’s reinsurance treaties and the impact of changes in foreign currency exchange rates.

Shareholders’ Equity

Shareholders’ equity of $24.121 billion decreased 3% from year-end 2014 primarily due to a reduction in after-tax net unrealized investment gains. After-tax net unrealized investment gains were $1.376 billion, compared to $1.966 billion at year-end 2014. Book value per share of $77.51 increased 1% from year-end 2014, while adjusted book value per share of $73.09 increased 3% from year-end 2014.

The Company repurchased 7.9 million shares during the second quarter and 14.2 million shares year-to-date at a total cost of $801 million and $1.473 billion, respectively, leaving $5.084 billion of remaining capacity under its existing share repurchase authorization at the end of the quarter. Also as of the end of the quarter, statutory capital and surplus was $20.851 billion and the ratio of debt-to-capital (excluding after-tax net unrealized investment gains) was 21.8%, well within the Company’s target range of 15% to 25%.

The Board of Directors today declared a quarterly dividend of $0.61 per share. This dividend is payable on September 30, 2015, to shareholders of record as of the close of business on September 10, 2015.

Business and International Insurance Segment Financial Results

Second Quarter 2015 Results

(All comparisons vs. second quarter 2014, unless noted otherwise)

Business and International Insurance had another strong quarter with operating income of $543 million after-tax and a combined ratio of 93.2%. Operating income increased $72 million primarily due to lower catastrophes, higher net favorable prior year reserve development, and a $12 million benefit from the resolution of prior year tax matters in the current quarter, partially offset by lower net investment income and a slightly lower underlying underwriting gain.

Underwriting results

• The combined ratio improved 4.9 points to 93.2%, due to lower catastrophe losses (3.7 points) and higher net favorable prior year reserve development (1.5 points), partially offset by a higher underlying combined ratio (0.3 points).
• The underlying combined ratio, while remaining strong, increased by 0.3 points to 93.1%.
• Net favorable prior year reserve development primarily resulted from better than expected loss experience in the workers’ compensation product line for accident years 2006 and prior, better than expected loss experience in the general liability product line primarily related to primary coverages for accident years 2008 through 2013, reflecting more favorable legal and judicial environments than what the Company previously expected, better than expected loss experience in the Company’s operations at Lloyd’s and in Canada, better than expected loss experience for property coverages in the commercial multi-peril product line primarily related to non-catastrophe losses for accident years 2012 and 2014, and better than expected loss experience for the property product line related to catastrophe losses for accident year 2014. These improvements were partially offset by a $47 million after-tax ($72 million pre-tax) increase to environmental reserves.

Net written premiums decreased 1% to $3.679 billion. Domestic net written premiums increased 1% driven by positive renewal premium changes and an increase in retention rates. International net written premiums decreased 15% primarily due to the impact of changes in foreign currency exchange rates.

Year-to-Date 2015 Results

(All comparisons vs. year-to-date 2014, unless noted otherwise)

Business and International Insurance performed well in the period with operating income of $1.058 billion after-tax and a combined ratio of 93.3%. Operating income decreased $107 million primarily due to lower net investment income and a lower underlying underwriting gain, partially offset by lower catastrophe losses, higher net favorable prior year reserve development and the $12 million benefit from the resolution of prior year tax matters. The underlying underwriting gain in the prior year period benefitted from a $49 million after-tax ($76 million pre-tax) reduction in the estimated liability for state assessments to be paid by the Company related to workers’ compensation premiums due to a change in state law.

Underwriting results

• The combined ratio improved 0.4 points to 93.3%, due to lower catastrophe losses (1.6 points) and higher net favorable prior year reserve development (0.5 points), partially offset by a higher underlying combined ratio (1.7 points).

• The underlying combined ratio, while remaining strong, increased 1.7 points to 92.9%, due to an increase in the expense ratio (1.7 points). The expense ratio increased primarily due to the inclusion in the prior year quarter of the above mentioned state assessments benefit (1.1 points).
• Net favorable prior year reserve development primarily resulted from the same factors as discussed above for the second quarter, as well as better than expected loss experience in the general liability product line primarily related to primary coverages for accident years 2005 and prior, and better than expected loss experience for the property product line related to catastrophe losses for accident years 2012 and 2013.

Net written premiums of $7.476 billion were comparable to the prior year. Domestic net written premiums increased 2% driven by positive renewal premium changes, an increase in retention rates, and an increase in new business, partially offset by the impact of changes in the timing and structure of certain of the Company’s reinsurance treaties. International net written premiums decreased 12% primarily due to the impact of changes in foreign currency exchange rates.

Bond & Specialty Insurance Segment Financial Results

Second Quarter 2015 Results

(All comparisons vs. second quarter 2014, unless noted otherwise)

Bond & Specialty Insurance had another strong quarter, with operating income of $151 million after-tax and a combined ratio of 73.7%. Operating income was $41 million lower than the prior year quarter due to lower net favorable prior year reserve development, partially offset by a $16 million benefit from the resolution of prior year tax matters in the current quarter.

Underwriting results

• The combined ratio, while remaining strong at 73.7%, increased 15.3 points primarily due to lower net favorable prior year reserve development (16.0 points).
• The underlying combined ratio remained strong at 81.1% and was comparable to the prior year quarter.
• Net favorable prior year reserve development primarily resulted from better than expected loss experience in the contract surety product line for accident years 2010 through 2013.

Bond & Specialty Insurance net written premiums decreased slightly to $534 million.

Year-to-Date 2015 Results

(All comparisons vs. year-to-date 2014, unless noted otherwise)

Bond & Specialty Insurance performed well in the period with operating income of $275 million after-tax and a combined ratio of 74.9%. Operating income decreased by $71 million due to lower net favorable prior year reserve development, partially offset by the $16 million benefit from the resolution of prior year tax matters.

Underwriting results

• The combined ratio remained strong at 74.9% while increasing 11.5 points primarily due to lower net favorable prior year reserve development (11.3 points).
• The underlying combined ratio remained strong at 82.0%.
• Net favorable prior year reserve development primarily resulted from the same factors as discussed above for the second quarter.

Bond & Specialty Insurance net written premiums decreased slightly to $1.012 billion.

Personal Insurance Segment Financial Results

Second Quarter 2015 Results

(All comparisons vs. second quarter 2014, unless noted otherwise)

Personal Insurance operating income of $174 million after-tax increased by $99 million due to strong underwriting performance, primarily driven by lower catastrophe losses, higher net favorable prior year reserve development, a higher underlying underwriting gain, and a $4 million benefit from the resolution of prior year tax matters in the current quarter.

Underwriting results

• The combined ratio improved 8.7 points to 91.1%, primarily driven by lower catastrophe losses (4.5 points), higher net favorable prior year reserve development (2.8 points), and a lower underlying combined ratio (1.4 points).
• The underlying combined ratio remained strong, improving 1.4 points to 88.4%, primarily due to lower non-catastrophe weather-related losses.
• Net favorable prior year reserve development primarily resulted from better than expected loss experience in the homeowners and other product line for liability coverages for accident years 2011 through 2014 and for non-catastrophe weather-related losses for accident year 2014, and better than expected loss experience in the Automobile product line for liability coverages for accident years 2012 through 2014.

Personal Insurance net written premiums of $1.956 billion increased 3%. Agency Automobile net written premiums grew by 7%, primarily due to higher new business that was driven by the continued success of Quantum 2.0. Agency Automobile policies in force increased by 4% from the prior year quarter. While Agency Homeowners & Other net written premiums were comparable to the prior year quarter, new business has improved. Agency Homeowners & Other policies in force, while down 2% from the prior year quarter, increased slightly on a sequential quarter basis.

Year-to-Date 2015 Results

(All comparisons vs. year-to-date 2014, unless noted otherwise)

Personal Insurance operating income of $426 million after-tax increased $83 million due to strong underwriting performance, primarily driven by lower catastrophe losses, higher net favorable prior year reserve development, a higher underlying underwriting gain, and the $4 million benefit from the resolution of prior year tax matters.

Underwriting results

• The combined ratio improved 4.4 points to 87.3%, primarily driven by lower catastrophe losses (2.3 points), higher net favorable prior year reserve development (1.4 points), and a lower underlying combined ratio (0.7 points).
• The underlying combined ratio remained strong, improving 0.7 points to 87.9%, primarily driven by lower non-catastrophe weather-related losses.
• Net favorable prior year reserve development primarily resulted from the same factors as discussed above for the second quarter, as well as better than expected loss experience for catastrophe weather-related losses for accident year 2011.

Other income of $24 million decreased primarily due to the inclusion in the prior year period of revenues associated with the runoff of the Company’s National Flood Insurance Program which was sold on a renewal rights basis in 2013.

Personal Insurance net written premiums of $3.578 billion increased 2%. Agency Automobile net written premiums increased 6% due to higher new business. Agency Homeowners & Other net written premiums decreased 3%, primarily driven by the impact of changes in the timing and structure of certain of the Company’s reinsurance treaties.

Financial Supplement and Conference Call

The information in this press release should be read in conjunction with a financial supplement that is available on our website at www.travelers.com. Travelers management will discuss the contents of this release and other relevant topics via webcast at 9 a.m. Eastern (8 a.m. Central) on Tuesday, July 21, 2015. Investors can access the call via webcast at http://investor.travelers.com or by dialing 1-800-272-6255 within the U.S. and 1-303-223-2680 outside the U.S. (use passcode 14788 for both the U.S. and international calls). Prior to the webcast, a slide presentation pertaining to the quarterly earnings will be available on the Company’s website.

Following the live event, an audio playback of the webcast and the slide presentation will be available at the same website. An audio playback can also be accessed by phone at 1-800-633-8284 within the U.S. and 1-402-977-9140 outside the U.S. (use reservation 21770122 for both the U.S. and international calls).

About Travelers

The Travelers Companies, Inc. (NYSE: TRV) is a leading provider of property casualty insurance for auto, home and business. The Company’s diverse business lines offer its customers a wide range of coverage sold primarily through independent agents and brokers. A component of the Dow Jones Industrial Average, Travelers has approximately 30,000 employees and operations in the United States and selected International markets. For more information, visit www.travelers.com.

From time to time, Travelers may use its website and/or social media outlets, such as Facebook and Twitter, as distribution channels of material Company information. Financial and other important information regarding the Company is routinely accessible through and posted on our website at http://investor.travelers.com, our Facebook page at https://www.facebook.com/travelers and our Twitter account (@Travelers) at https://twitter.com/Travelers. In addition, you may automatically receive email alerts and other information about Travelers when you enroll your email address by visiting the Email Notifications section at http://investor.travelers.com.

Travelers is organized into the following reportable business segments:

Business and International Insurance: The Business and International Insurance segment offers a broad array of property and casualty insurance and insurance related services to its clients, primarily in the United States, as well as in Canada, the United Kingdom, the Republic of Ireland and throughout other parts of the world as a corporate member of Lloyd’s.

Bond & Specialty Insurance: The Bond & Specialty Insurance segment provides surety, crime, management and professional liability coverages and related risk management services to a wide range of primarily domestic customers, utilizing various degrees of financially-based underwriting approaches.

Personal Insurance: The Personal Insurance segment writes a broad range of property and casualty insurance covering individuals’ personal risks. The primary products of automobile and homeowners insurance are complemented by a broad suite of related coverages.

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Forward-Looking Statement

This press release 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. Words such as “may”, “will”, “should”, “likely”, “anticipates”, “expects”, “intends”, “plans”, “projects”, “believes”, “estimates” and similar expressions are used to identify these forward-looking statements. Specifically, statements about the Company’s outlook, share repurchase plans, expected margin improvement, potential returns, future pension plan contributions and the potential impact of investment markets and other economic conditions on the Company’s investment portfolio and underwriting results, among others, are forward looking, and the Company may also make forward-looking statements about, among other things:

• its results of operations and financial condition (including, among other things, premium volume, premium rates, net and operating income, investment income and performance, loss costs, return on equity, and expected current returns and combined ratios);
• the sufficiency of the Company’s asbestos and other reserves;
• the impact of emerging claims issues as well as other insurance and non-insurance litigation;
• the cost and availability of reinsurance coverage;
• catastrophe losses;
• the impact of investment, economic (including rapid changes in commodity prices, such as a significant decline in oil and gas prices, as well as fluctuations in foreign currency exchange rates) and underwriting market conditions; and
• strategic initiatives, including initiatives such as in Personal Insurance, to improve profitability and competitiveness.

The Company cautions investors that such statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond the Company’s control, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements.

Some of the factors that could cause actual results to differ include, but are not limited to, the following:

• catastrophe losses could materially and adversely affect the Company’s results of operations, its financial position and/or liquidity, and could adversely impact the Company’s ratings, the Company’s ability to raise capital and the availability and cost of reinsurance;
• during or following a period of financial market disruption or economic downturn, the Company’s business could be materially and adversely affected;
• if actual claims exceed the Company’s claims and claim adjustment expense reserves, or if changes in the estimated level of claims and claim adjustment expense reserves are necessary, the Company’s financial results could be materially and adversely affected;
• the Company’s investment portfolio may suffer reduced returns or material realized or unrealized losses;
• the Company’s business could be harmed because of its potential exposure to asbestos and environmental claims and related litigation;
• the Company is exposed to, and may face adverse developments involving, mass tort claims such as those relating to exposure to potentially harmful products or substances;
• the effects of emerging claim and coverage issues on the Company’s business are uncertain;
• the intense competition that the Company faces could harm its ability to maintain or increase its business volumes and its profitability;
• consolidation within the insurance industry, including among insurance companies, reinsurance companies and brokers and independent insurance agencies, could alter the competitive environment in which the Company operates, which may impact the Company’s premium volume, the rate it can charge for its products, and the terms on which its products are offered;
• the Company may not be able to collect all amounts due to it from reinsurers and reinsurance coverage may not be available to the Company in the future at commercially reasonable rates or at all;
• the Company is exposed to credit risk in certain of its business and investment operations including reinsurance or structured settlements;
• within the United States, the Company’s businesses are heavily regulated by the states in which it conducts business, including licensing and supervision, and changes in regulation may reduce the Company’s profitability and limit its growth;
• changes in federal regulation could impose significant burdens on the Company and otherwise adversely impact the Company’s results;
• a downgrade in the Company’s claims-paying and financial strength ratings could adversely impact the Company’s business volumes, adversely impact the Company’s ability to access the capital markets and increase the Company’s borrowing costs;
• the inability of the Company’s insurance subsidiaries to pay dividends to the Company’s holding company in sufficient amounts would harm the Company’s ability to meet its obligations, pay future shareholder dividends or make future share repurchases;
• disruptions to the Company’s relationships with its independent agents and brokers could adversely affect the Company;
• the Company’s efforts to develop new products or expand in targeted markets may not be successful and may create enhanced risks;
• the Company may be adversely affected if its pricing and capital models provide materially different indications than actual results;
• the Company’s business success and profitability depend, in part, on effective information technology systems and on continuing to develop and implement improvements in technology;
• if the Company experiences difficulties with technology, data and network security and/or outsourcing relationships, including cloud-based, the Company’s ability to conduct its business could be negatively impacted;

• the Company is subject to a number of risks associated with its business outside the United States;

• new regulations outside of the United States, including in the European Union, could adversely impact the Company’s results of operations and limit its growth;
• loss of or significant restrictions on the use of particular types of underwriting criteria, such as credit scoring, or other data or methodologies, in the pricing and underwriting of the Company’s products could reduce the Company’s future profitability;
• acquisitions and integration of acquired businesses may result in operating difficulties and other unintended consequences;
• the Company could be adversely affected if its controls designed to ensure compliance with guidelines, policies and legal and regulatory standards are not effective;
• the Company’s businesses may be adversely affected if it is unable to hire and retain qualified employees;
• intellectual property is important to the Company’s business, and the Company may be unable to protect and enforce its own intellectual property or the Company may be subject to claims for infringing the intellectual property of others;
• changes to existing accounting standards may adversely impact the Company’s reported results;
• changes in U.S. tax laws or in the tax laws of other jurisdictions in which the Company operates could adversely impact the Company; and
• the Company’s share repurchase plans depend on a variety of factors, including the Company’s financial position, earnings, share price, catastrophe losses, maintaining capital levels commensurate with the Company’s desired ratings from independent rating agencies, funding of the Company’s qualified pension plan, capital requirements of the Company’s operating subsidiaries, legal requirements, regulatory constraints, other investment opportunities (including mergers and acquisitions and related financings), market conditions and other factors.

Our forward-looking statements speak only as of the date of this press release or as of the date they are made, and we undertake no obligation to update forward-looking statements. For a more detailed discussion of these factors, see the information under the captions "Risk Factors" and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 12, 2015.

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GLOSSARY OF FINANCIAL MEASURES AND RECONCILIATIONS OF NON-GAAP MEASURES TO GAAP MEASURES

The following measures are used by the Company’s management to evaluate financial performance against historical results and establish targets on a consolidated basis. In some cases, these measures are considered non-GAAP financial measures under applicable SEC rules because they are not displayed as separate line items in the consolidated financial statements or are not required to be disclosed in the notes to financial statements or, in some cases, include or exclude certain items not ordinarily included or excluded in the most comparable GAAP financial measure. Reconciliations of non-GAAP measures to their most directly comparable GAAP measures also follow.

In the opinion of the Company’s management, a discussion of these measures provides investors, financial analysts, rating agencies and other financial statement users with a better understanding of the significant factors that comprise the Company’s periodic results of operations and how management evaluates the Company’s financial performance. Internally, the Company’s management uses these measures to evaluate performance against historical results, to establish financial targets on a consolidated basis and for other reasons, which are discussed below.

Some of these measures exclude net realized investment gains (losses), net of tax, and/or net unrealized investment gains (losses), net of tax, which can be significantly impacted by both discretionary and other economic factors and are not necessarily indicative of operating trends.

Other companies may calculate these measures differently, and, therefore, their measures may not be comparable to those used by the Company’s management.

RECONCILIATION OF OPERATING INCOME AND CERTAIN OTHER NON-GAAP MEASURES TO NET INCOME

Operating income is net income excluding the after-tax impact of net realized investment gains (losses) and discontinued operations. Management uses operating income to analyze each segment’s performance and as a tool in making business decisions. Financial statement users also consider operating income when analyzing the results and trends of insurance companies. Operating earnings per share is operating income on a per common share basis.

RECONCILIATION OF ADJUSTED SHAREHOLDERS’ EQUITY TO SHAREHOLDERS’ EQUITY AND OPERATING RETURN ON EQUITY TO RETURN ON EQUITY

Average shareholders’ equity is (a) the sum of total shareholders’ equity excluding preferred stock at the beginning and end of each of the quarters for the period presented divided by (b) the number of quarters in the period presented times two. Adjusted shareholders’ equity is shareholders’ equity excluding net unrealized investment gains (losses), net of tax, net realized investment gains (losses), net of tax, for the period presented, preferred stock and discontinued operations. Adjusted average shareholders’ equity is average shareholders’ equity excluding net unrealized investment gains (losses), net of tax, for all quarters included in the calculation and, for each quarterly period included in the calculation, that quarter’s net realized investment gains (losses), net of tax and discontinued operations.