Item 1. FINANCIAL STATEMENTS

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Item 1. FINANCIAL STATEMENTS

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (Unaudited)

(in millions, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	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

Weighted average number of common shares outstanding
Basic	247.7		253.3		250.1		253.5
Diluted	250.1		254.3		252.4		254.5

Cash dividends declared per common share	$	0.88	$	0.85	$	2.61	$	2.52

The accompanying notes are an integral part of the consolidated financial statements.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)

(in millions)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

Net income	$	662	$	827	$	2,329	$	1,387

Other comprehensive income (loss)
Changes in net unrealized gains on investment securities:
Having no credit losses recognized in the consolidated statement of income	(686)		217		(1,749)		2,001
Having credit losses recognized in the consolidated statement of income	—		(7)		—		(10)
Net changes in benefit plan assets and obligations	26		20		77		64
Net changes in unrealized foreign currency translation	(91)		79		(25)		(137)
Other comprehensive income (loss) before income taxes	(751)		309		(1,697)		1,918
Income tax expense (benefit)	(148)		53		(361)		420
Other comprehensive income (loss), net of taxes	(603)		256		(1,336)		1,498
Comprehensive income	$	59	$	1,083	$	993	$	2,885

The accompanying notes are an integral part of the consolidated financial statements.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in millions)


	September 30, 2021		December 31, 2020
	(Unaudited)
Assets
Fixed maturities, available for sale, at fair value (amortized cost $73,614 and $68,830; allowance for expected credit losses of $2 and $2)	$	77,040	$	74,003
Equity securities, at fair value (cost $398 and $387)	509		453
Real estate investments	1,004		1,026
Short-term securities	4,754		5,511
Other investments	4,199		3,430
Total investments	87,506		84,423
Cash	818		721
Investment income accrued	565		603
Premiums receivable (net of allowance for expected credit losses of $102 and $105)	8,289		7,829
Reinsurance recoverables (net of allowance for estimated uncollectible reinsurance of $142 and $146)	8,329		8,350
Ceded unearned premiums	1,084		772
Deferred acquisition costs	2,570		2,358

Contractholder receivables (net of allowance for expected credit losses of $19 and $19)	4,024		4,242
Goodwill	4,005		3,976
Other intangible assets	309		317
Other assets	3,207		3,173
Total assets	$	120,706	$	116,764

Liabilities
Claims and claim adjustment expense reserves	$	56,805	$	54,521
Unearned premium reserves	16,677		15,222
Contractholder payables	4,043		4,261
Payables for reinsurance premiums	621		356
Deferred taxes	274		558
Debt	7,290		6,550
Other liabilities	6,522		6,095
Total liabilities	92,232		87,563

Shareholders’ equity
Common stock (1,750.0 shares authorized; 246.0 and 252.4 shares issued and outstanding)	24,084		23,743
Retained earnings	40,438		38,771
Accumulated other comprehensive income	1,166		2,502
Treasury stock, at cost (536.4 and 527.3 shares)	(37,214)		(35,815)
Total shareholders’ equity	28,474		29,201
Total liabilities and shareholders’ equity	$	120,706	$	116,764

The accompanying notes are an integral part of the consolidated financial statements.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(in millions)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

Common stock
Balance, beginning of period	$	24,002	$	23,606	$	23,743	$	23,469
Employee share-based compensation	45		8		214		64
Compensation amortization under share-based plans and other changes	37		32		127		113
Balance, end of period	24,084		23,646		24,084		23,646

Retained earnings
Balance, beginning of period	39,998		37,069		38,771		36,977
Cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2020	—		—		—		(43)

Net income	662		827		2,329		1,387
Dividends	(220)		(218)		(660)		(646)
Other	(2)		1		(2)		4
Balance, end of period	40,438		37,679		40,438		37,679

Accumulated other comprehensive income, net of tax
Balance, beginning of period	1,769		1,882		2,502		640


Other comprehensive income (loss)	(603)		256		(1,336)		1,498
Balance, end of period	1,166		2,138		1,166		2,138

Treasury stock, at cost
Balance, beginning of period	(36,613)		(35,614)		(35,815)		(35,143)
Treasury stock acquired — share repurchase authorizations	(600)		—		(1,356)		(425)
Net shares acquired related to employee share-based compensation plans	(1)		—		(43)		(46)
Balance, end of period	(37,214)		(35,614)		(37,214)		(35,614)

Total shareholders’ equity	$	28,474	$	27,849	$	28,474	$	27,849

Common shares outstanding
Balance, beginning of period	249.5		253.2		252.4		255.5
Treasury stock acquired — share repurchase authorizations	(3.8)		—		(8.8)		(3.5)
Net shares issued under employee share-based compensation plans	0.3		0.1		2.4		1.3
Balance, end of period	246.0		253.3		246.0		253.3

The accompanying notes are an integral part of the consolidated financial statements.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

(in millions)


	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities
Net income	$	2,329	$	1,387
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment (gains) losses	(113)		48
Depreciation and amortization	662		577
Deferred federal income tax expense (benefit)	61		(67)
Amortization of deferred acquisition costs	3,742		3,558
Equity in (income) loss from other investments	(774)		32
Premiums receivable	(462)		(324)
Reinsurance recoverables	20		(150)
Deferred acquisition costs	(3,955)		(3,694)
Claims and claim adjustment expense reserves	2,299		2,673
Unearned premium reserves	1,460		960
Other	313		(382)
Net cash provided by operating activities	5,582		4,618
Cash flows from investing activities
Proceeds from maturities of fixed maturities	6,523		5,241
Proceeds from sales of investments:
Fixed maturities	2,864		1,994
Equity securities	74		76
Real estate investments	7		—
Other investments	275		184
Purchases of investments:
Fixed maturities	(14,356)		(9,951)
Equity securities	(68)		(80)
Real estate investments	(22)		(33)
Other investments	(643)		(321)
Net sales (purchases) of short-term securities	754		(1,387)
Securities transactions in course of settlement	407		522
Acquisition, net of cash acquired	(38)		—
Other	(199)		(222)
Net cash used in investing activities	(4,422)		(3,977)

Cash flows from financing activities
Treasury stock acquired — share repurchase authorizations	(1,356)		(425)
Treasury stock acquired — net employee share-based compensation	(43)		(46)
Dividends paid to shareholders	(655)		(643)

Issuance of debt	739		490
Issuance of common stock — employee share options	256		72
Net cash used in financing activities	(1,059)		(552)
Effect of exchange rate changes on cash	(4)		—
Net increase in cash	97		89
Cash at beginning of year	721		494
Cash at end of period	$	818	$	583

Supplemental disclosure of cash flow information
Income taxes paid	$	543	$	413
Interest paid	$	222	$	226

The accompanying notes are an integral part of the consolidated financial statements.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Basis of Presentation

The interim consolidated financial statements include the accounts of The Travelers Companies, Inc. (together with its subsidiaries, the Company). These financial statements are prepared in conformity with U.S. generally accepted accounting principles (GAAP) and are unaudited. In the opinion of the Company’s management, all adjustments necessary for a fair presentation have been reflected. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted. All material intercompany transactions and balances have been eliminated. The accompanying interim consolidated financial statements and related notes should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the Company’s 2020 Annual Report).

The preparation of the interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim consolidated financial statements and the reported amounts of revenues and claims and expenses during the reporting period. Actual results could differ from those estimates.

Adoption of Accounting Standards

Income Taxes - Simplifying the Accounting for Income Taxes

In December 2019, the Financial Accounting Standards Board (FASB) issued updated guidance for the accounting for income taxes. The updated guidance is intended to simplify the accounting for income taxes by removing several exceptions contained in existing guidance and amending other existing guidance to simplify several other income tax accounting matters. The Company adopted the updated guidance for the quarter ended March 31, 2021. The adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity.

For additional information regarding accounting standards that the Company adopted during the periods presented, see note 1 of notes to the consolidated financial statements in the Company’s 2020 Annual Report.

2. SEGMENT INFORMATION

Nature of Operations

The Company’s results are reported in the following three business segments — Business Insurance, Bond & Specialty Insurance and Personal Insurance. These segments reflect the manner in which the Company’s businesses are currently managed and represent an aggregation of products and services based on the type of customer, how the business is marketed and the manner in which risks are underwritten. For more information regarding the Company’s nature of operations, see the “Nature of Operations*”* section of note 1 of notes to the consolidated financial statements in the Company’s 2020 Annual Report.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

2. SEGMENT INFORMATION, Continued

The following tables summarize the components of the Company’s revenues, income and total assets by reportable business segments:


(For the three months ended September 30, in millions)	Business Insurance		Bond & Specialty Insurance		Personal Insurance		Total Reportable Segments

2021
Premiums	$	3,970	$	806	$	3,053	$	7,829
Net investment income	575		63		133		771
Fee income	90		—		7		97
Other revenues	69		5		26		100
Total segment revenues (1)	$	4,704	$	874	$	3,219	$	8,797
Segment income (loss) (1)	$	558	$	174	$	(2)	$	730

2020
Premiums	$	3,841	$	723	$	2,816	$	7,380
Net investment income	498		58		115		671
Fee income	95		—		6		101
Other revenues	58		7		21		86
Total segment revenues (1)	$	4,492	$	788	$	2,958	$	8,238
Segment income (1)	$	365	$	115	$	392	$	872

(1)Segment revenues for reportable business segments exclude net realized investment gains (losses) and revenues included in "interest expense and other." Segment income (loss) for reportable business segments equals net income excluding the after-tax impact of net realized investment gains (losses) and income (loss) from "interest expense and other."


(For the nine months ended September 30, in millions)	Business Insurance		Bond & Specialty Insurance		Personal Insurance		Total Reportable Segments
2021
Premiums	$	11,649	$	2,325	$	8,857	$	22,831
Net investment income	1,713		186		391		2,290
Fee income	282		—		20		302
Other revenues	179		17		73		269
Total segment revenues (1)	$	13,823	$	2,528	$	9,341	$	25,692
Segment income (1)	$	1,518	$	498	$	433	$	2,449

2020
Premiums	$	11,440	$	2,083	$	8,041	$	21,564
Net investment income	1,131		155		264		1,550
Fee income	305		—		18		323
Other revenues	125		17		53		195
Total segment revenues (1)	$	13,001	$	2,255	$	8,376	$	23,632
Segment income (1)	$	596	$	309	$	738	$	1,643

(1)Segment revenues for reportable business segments exclude net realized investment gains (losses) and revenues included in "interest expense and other." Segment income for reportable business segments equals net income excluding the after-tax impact of net realized investment gains (losses) and income (loss) from "interest expense and other."

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

2. SEGMENT INFORMATION, Continued

Business Segment Reconciliations


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2021		2020		2021		2020
Revenue reconciliation
Earned premiums
Business Insurance:
Domestic:
Workers’ compensation	$	789	$	851	$	2,410	$	2,568
Commercial automobile	718		698		2,122		2,058
Commercial property	582		522		1,669		1,544
General liability	662		605		1,887		1,786
Commercial multi-peril	939		891		2,708		2,660
Other	17		15		45		38
Total Domestic	3,707		3,582		10,841		10,654
International	263		259		808		786
Total Business Insurance	3,970		3,841		11,649		11,440
Bond & Specialty Insurance:
Domestic:
Fidelity and surety	277		277		819		805
General liability	365		310		1,043		893
Other	54		60		165		178
Total Domestic	696		647		2,027		1,876
International	110		76		298		207
Total Bond & Specialty Insurance	806		723		2,325		2,083
Personal Insurance:
Domestic:
Automobile	1,445		1,391		4,220		3,896
Homeowners and Other	1,437		1,262		4,122		3,659
Total Domestic	2,882		2,653		8,342		7,555
International	171		163		515		486
Total Personal Insurance	3,053		2,816		8,857		8,041
Total earned premiums	7,829		7,380		22,831		21,564
Net investment income	771		671		2,290		1,550
Fee income	97		101		302		323
Other revenues	100		86		269		195
Total segment revenues	8,797		8,238		25,692		23,632

Net realized investment gains (losses)	8		37		113		(48)
Total revenues	$	8,805	$	8,275	$	25,805	$	23,584
Income reconciliation, net of tax
Total segment income	$	730	$	872	$	2,449	$	1,643
Interest Expense and Other (1)	(75)		(74)		(216)		(219)
Core income	655		798		2,233		1,424
Net realized investment gains (losses)	7		29		88		(37)
Impact of changes in tax laws and/or tax rates (2)	—		—		8		—
Net income	$	662	$	827	$	2,329	$	1,387

(1) The primary component of Interest Expense and Other was after-tax interest expense of $69 million for both the three months ended September 30, 2021 and 2020 and $199 million and $202 million for the nine months ended September 30, 2021 and 2020, respectively.

(2) Impact is recognized in the accounting period in which the change is enacted.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

2. SEGMENT INFORMATION, Continued


(in millions)	September 30, 2021		December 31, 2020
Asset reconciliation
Business Insurance	$	90,661	$	88,422
Bond & Specialty Insurance	10,313		9,420
Personal Insurance	19,028		18,328
Total assets by reportable segment	120,002		116,170
Other assets (1)	704		594
Total consolidated assets	$	120,706	$	116,764

(1)The primary components of other assets at both September 30, 2021 and December 31, 2020 were accrued over-funded benefit plan assets related to the Company’s qualified domestic pension plan and other intangible assets.

3. INVESTMENTS

Fixed Maturities

The amortized cost and fair value of investments in fixed maturities classified as available for sale were as follows:


	Amortized Cost		Allowance for Expected Credit Losses		Gross Unrealized				Fair Value
(at September 30, 2021, in millions)			Gains		Losses
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	3,908	$	—	$	27	$	20	$	3,915
Obligations of states, municipalities and political subdivisions:
Local general obligation	18,064		—		1,022		72		19,014
Revenue	10,785		—		660		36		11,409
State general obligation	1,170		—		66		3		1,233
Pre-refunded	3,885		—		218		—		4,103
Total obligations of states, municipalities and political subdivisions	33,904		—		1,966		111		35,759
Debt securities issued by foreign governments	1,037		—		12		5		1,044
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	1,727		—		89		1		1,815
All other corporate bonds	33,026		2		1,598		129		34,493
Redeemable preferred stock	12		—		2		—		14
Total	$	73,614	$	2	$	3,694	$	266	$	77,040

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

3. INVESTMENTS, Continued


	Amortized Cost		Allowance for Expected Credit Losses		Gross Unrealized				Fair Value
(at December 31, 2020, in millions)			Gains		Losses
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	2,111	$	—	$	38	$	—	$	2,149
Obligations of states, municipalities and political subdivisions:
Local general obligation	17,289		—		1,370		2		18,657
Revenue	11,806		—		909		—		12,715
State general obligation	1,343		—		101		—		1,444
Pre-refunded	3,325		—		219		—		3,544
Total obligations of states, municipalities and political subdivisions	33,763		—		2,599		2		36,360
Debt securities issued by foreign governments	1,028		—		26		—		1,054
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	2,222		—		139		—		2,361
All other corporate bonds	29,683		2		2,382		9		32,054
Redeemable preferred stock	23		—		2		—		25
Total	$	68,830	$	2	$	5,186	$	11	$	74,003

Pre-refunded bonds of $4.10 billion and $3.54 billion at September 30, 2021 and December 31, 2020, respectively, were bonds for which states or municipalities have established irrevocable trusts, almost exclusively comprised of U.S. Treasury securities and obligations of U.S. government and government agencies and authorities. These trusts were created to fund the payment of principal and interest due under the bonds.

Proceeds from sales of fixed maturities classified as available for sale were $2.86 billion and $1.99 billion during the nine months ended September 30, 2021 and 2020, respectively. Gross gains of $56 million and $52 million and gross losses of $5 million and $3 million were realized on those sales during the nine months ended September 30, 2021 and 2020, respectively.

Equity Securities

The cost and fair value of investments in equity securities were as follows:


							Fair
(at September 30, 2021, in millions)	Cost		Gross Gains		Gross Losses		Value
Public common stock	$	367	$	105	$	5	$	467
Non-redeemable preferred stock	31		11		—		42
Total	$	398	$	116	$	5	$	509


							Fair
(at December 31, 2020, in millions)	Cost		Gross Gains		Gross Losses		Value
Public common stock	$	352	$	70	$	12	$	410
Non-redeemable preferred stock	35		8		—		43
Total	$	387	$	78	$	12	$	453

For the nine months ended September 30, 2021 and 2020, the Company recognized $45 million and $(14) million of net gains (losses) on equity securities still held as of September 30, 2021 and 2020, respectively.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

3. INVESTMENTS, Continued

Unrealized Investment Losses

The following tables summarize, for all fixed maturities classified as available for sale in an unrealized loss position at September 30, 2021 and December 31, 2020, the aggregate fair value and gross unrealized loss by length of time those securities have been continuously in an unrealized loss position. The fair value amounts reported in the tables are estimates that are prepared using the process described in note 4 herein and in note 4 of notes to the consolidated financial statements in the Company’s 2020 Annual Report. The Company also relies upon estimates of several factors in its review and evaluation of individual investments, using the process described in note 1 of notes to the consolidated financial statements in the Company’s 2020 Annual Report to determine whether a credit loss impairment exists.


	Less than 12 months				12 months or longer				Total
(at September 30, 2021, in millions)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Fixed maturities
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	1,804	$	20	$	5	$	—	$	1,809	$	20
Obligations of states, municipalities and political subdivisions	5,143		107		116		4		5,259		111
Debt securities issued by foreign governments	391		5		2		—		393		5
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	233		1		1		—		234		1
All other corporate bonds	5,831		121		189		8		6,020		129

Total	$	13,402	$	254	$	313	$	12	$	13,715	$	266


	Less than 12 months				12 months or longer				Total
(at December 31, 2020, in millions)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Fixed maturities
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	92	$	—	$	—	$	—	$	92	$	—
Obligations of states, municipalities and political subdivisions	245		2		—		—		245		2
Debt securities issued by foreign governments	7		—		—		—		7		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	20		—		1		—		21		—
All other corporate bonds	681		6		97		3		778		9
Total	$	1,045	$	8	$	98	$	3	$	1,143	$	11

At September 30, 2021, the amount of gross unrealized losses for all fixed maturity investments reported at fair value for which fair value was less than 80% of amortized cost was not significant.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

3. INVESTMENTS, Continued

Credit Impairment Charges

The following tables present changes in the allowance for expected credit losses on fixed maturities classified as available for sale for the category of All Other Corporate Bonds (no other categories of fixed maturities currently have an allowance for expected credit losses):


	Fixed Maturities
	At and For the Three Months Ended September 30, 2021		At and For the Three Months Ended September 30, 2020
(in millions)	All Other Corporate Bonds		All Other Corporate Bonds

Balance, beginning of period	$	2	$	8
Additions for expected credit losses on securities where no credit losses were previously recognized	—		1
Additions (reductions) for expected credit losses on securities where credit losses were previously recognized	1		(3)
Reductions due to sales/defaults of credit-impaired securities	(1)		(2)
Reductions for impairments of securities which the Company intends to sell or more likely than not will be required to sell (1)	—		—
Balance, end of period	$	2	$	4

(1)Credit impairment charges recognized in net realized investment gains (losses) for each of the three months ended September 30, 2021 and 2020 included $0 million of credit losses on fixed maturity securities which the Company had the intent to sell. An allowance for expected credit losses was not previously recorded for these securities.


	Fixed Maturities
	At and For the Nine Months Ended September 30, 2021		At and For the Nine Months Ended September 30, 2020
(in millions)	All Other Corporate Bonds			All Other Corporate Bonds

Balance, beginning of period	$	2		$	—
Additions for expected credit losses on securities where no credit losses were previously recognized	1			9
Additions (reductions) for expected credit losses on securities where credit losses were previously recognized	—			(3)
Reductions due to sales/defaults of credit-impaired securities	(1)			(2)
Reductions for impairments of securities which the Company intends to sell or more likely than not will be required to sell (1)	—			—
Balance, end of period	$	2		$	4

(1)Credit impairment charges recognized in net realized investment gains (losses) for the nine months ended September 30, 2021 and 2020 included $0 million and $14 million, respectively, of credit losses on fixed maturity securities which the Company had the intent to sell. An allowance for expected credit losses was not previously recorded for these securities.

Total net credit impairment charges included in net realized investment gains (losses) in the consolidated statement of income were $1 million and $(4) million for the three months ended September 30, 2021 and 2020, respectively, and $1 million and $58 million for the nine months ended September 30, 2021 and 2020, respectively. Additionally, net realized investment gains (losses) in the first nine months of 2020 included $40 million of realized losses related to the other-than-temporary impairment of the carrying value of an equity method investment included in other investments. Credit losses related to the fixed maturity portfolio for both the three months and nine months ended September 30, 2021 and 2020 represented less than 1% of the fixed maturity portfolio on a pre-tax basis and less than 1% of shareholders’ equity on an after-tax basis.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

3. INVESTMENTS, Continued

Other Investments

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.

4. FAIR VALUE MEASUREMENTS

The Company’s estimates of fair value for financial assets and financial liabilities are based on the framework established in the fair value accounting guidance. The framework is based on the inputs used in valuation, gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the fair value accounting guidance hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. The level in the fair value hierarchy within which the fair value measurement is reported is based on the lowest level input that is significant to the measurement in its entirety. The three levels of the hierarchy are as follows:

Level 1 - Unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.
Level 3 - Valuations based on models where significant inputs are not observable. The unobservable inputs reflect the Company’s own assumptions about the inputs that market participants would use.

Valuation of Investments Reported at Fair Value in Financial Statements

The Company utilized a pricing service to estimate fair value measurements for approximately 99% of its fixed maturities at both September 30, 2021 and December 31, 2020.

While the vast majority of the Company’s fixed maturities are included in Level 2, the Company holds a number of municipal bonds and corporate bonds which are not valued by the pricing service and estimates the fair value of these bonds using either another internal pricing matrix, a present value income approach, or a broker quote (collectively, the other methodologies). The other methodologies include some unobservable inputs that are significant to the valuation. Due to the limited amount of observable market information available in the estimation of fair value, the Company includes the fair value estimates for bonds that are valued using the other methodologies in Level 3.

Additionally, the Company held investments in non-public common and preferred equity securities that are reported in other investments. Fair value estimates for these investments are determined either internally or by an external fund manager based on the impact of recent observable transactions on the investment’s equity, recent filings, operating results, balance sheet stability, growth and other business and market sector fundamentals. Due to the significant unobservable inputs in these valuations, the Company includes the fair value estimate of $343 million and $35 million for these investments at September 30, 2021 and December 31, 2020, respectively, in the amounts disclosed in Level 3.

For more information regarding the valuation of the Company’s fixed maturities, equity securities and other investments, see note 4 of notes to the consolidated financial statements in the Company’s 2020 Annual Report.

Other Liabilities

The Company has a put/call option that was entered into in connection with a business acquisition that allows the Company to acquire the remaining shares of the acquired company at a future date. The fair value of the put/call option at September 30, 2021 and December 31, 2020 was $4 million and $5 million, respectively, and was determined using an internal model and is

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

4. FAIR VALUE MEASUREMENTS, Continued

based on the acquired company's financial performance, adjusted for a risk margin and discounted to present value. The Company includes the fair value estimate of the put/call option in Level 3.

Fair Value Hierarchy

The following tables present the level within the fair value hierarchy at which the Company’s financial assets and financial liabilities are measured on a recurring basis.


(at September 30, 2021, in millions)	Total		Level 1		Level 2		Level 3

Invested assets:
Fixed maturities
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	3,915	$	3,915	$	—	$	—
Obligations of states, municipalities and political subdivisions	35,759		5		35,750		4
Debt securities issued by foreign governments	1,044		—		1,044		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	1,815		—		1,734		81
All other corporate bonds	34,493		4		34,346		143
Redeemable preferred stock	14		—		14		—
Total fixed maturities	77,040		3,924		72,888		228
Equity securities
Public common stock	467		467		—		—
Non-redeemable preferred stock	42		16		26		—
Total equity securities	509		483		26		—
Other investments	361		18		—		343
Total	$	77,910	$	4,425	$	72,914	$	571

Other liabilities	$	4	$	—	$	—	$	4

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

4. FAIR VALUE MEASUREMENTS, Continued


(at December 31, 2020, in millions)	Total		Level 1		Level 2		Level 3

Invested assets:
Fixed maturities
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	2,149	$	2,149	$	—	$	—
Obligations of states, municipalities and political subdivisions	36,360		—		36,349		11
Debt securities issued by foreign governments	1,054		—		1,054		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	2,361		—		2,361		—
All other corporate bonds	32,054		—		31,899		155
Redeemable preferred stock	25		3		22		—
Total fixed maturities	74,003		2,152		71,685		166
Equity securities
Public common stock	410		410		—		—
Non-redeemable preferred stock	43		18		25		—
Total equity securities	453		428		25		—
Other investments	52		17		—		35
Total	$	74,508	$	2,597	$	71,710	$	201

Other liabilities	$	5	$	—	$	—	$	5

Level 3 investments increased during the nine months ended September 30, 2021, primarily driven by an increase in Other Investments. There was no other significant activity in Level 3 of the hierarchy during the nine months ended September 30, 2021 or the year ended December 31, 2020.

Financial Instruments Disclosed, But Not Carried, At Fair Value

The following tables present the carrying value and fair value of the Company’s financial assets and financial liabilities disclosed, but not carried, at fair value, and the level within the fair value hierarchy at which such assets and liabilities are categorized.


(at September 30, 2021, in millions)	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets
Short-term securities	$	4,754	$	4,754	$	663	$	4,040	$	51
Financial liabilities
Debt	$	7,190	$	9,131	$	—	$	9,131	$	—
Commercial paper	$	100	$	100	$	—	$	100	$	—


(at December 31, 2020, in millions)	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets
Short-term securities	$	5,511	$	5,511	$	630	$	4,829	$	52
Financial liabilities
Debt	$	6,450	$	8,976	$	—	$	8,976	$	—
Commercial paper	$	100	$	100	$	—	$	100	$	—

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

4. FAIR VALUE MEASUREMENTS, Continued

The Company had no material assets or liabilities that were measured at fair value on a non-recurring basis during the nine months ended September 30, 2021 or the year ended December 31, 2020.

5. ALLOWANCE FOR EXPECTED CREDIT LOSSES

Premiums Receivable

The following tables present the balances of premiums receivable, net of the allowance for expected credit losses, at September 30, 2021 and 2020, and the changes in the allowance for expected credit losses for the three and nine months ended September 30, 2021 and 2020.


	At and For the Three Months Ended September 30, 2021				At and For the Three Months Ended September 30, 2020
(in millions)	Premiums Receivable, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses		Premiums Receivable, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses

Balance, beginning of period	$	8,555	$	105	$	8,459	$	94

Current period change for expected credit losses			15				17
Write-offs of uncollectible premiums receivable			18				15

Balance, end of period	$	8,289	$	102	$	8,225	$	96


	At and For the Nine Months Ended September 30, 2021				At and For the Nine Months Ended September 30, 2020
(in millions)	Premiums Receivable, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses		Premiums Receivable, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses

Balance, beginning of period	$	7,829	$	105	$	7,909	$	49

Current period change for expected credit losses			45				84
Write-offs of uncollectible premiums receivable			48				37

Balance, end of period	$	8,289	$	102	$	8,225	$	96

Reinsurance Recoverables

The following tables present the balances of reinsurance recoverables, net of the allowance for estimated uncollectible reinsurance, at September 30, 2021 and 2020, and the changes in the allowance for estimated uncollectible reinsurance for the three and nine months ended September 30, 2021 and 2020.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

5. ALLOWANCE FOR EXPECTED CREDIT LOSSES, Continued


	At and For the Three Months Ended September 30, 2021				At and For the Three Months Ended September 30, 2020
(in millions)	Reinsurance Recoverables, Net of Allowance for Estimated Uncollectible Reinsurance		Allowance for Estimated Uncollectible Reinsurance		Reinsurance Recoverables, Net of Allowance for Estimated Uncollectible Reinsurance		Allowance for Estimated Uncollectible Reinsurance

Balance, beginning of period	$	8,209	$	135	$	8,093	$	156


Current period change for estimated uncollectible reinsurance			7				(16)
Write-offs of uncollectible reinsurance recoverables			—				—
Balance, end of period	$	8,329	$	142	$	8,317	$	140


	At and For the Nine Months Ended September 30, 2021				At and For the Nine Months Ended September 30, 2020
(in millions)	Reinsurance Recoverables, Net of Allowance for Estimated Uncollectible Reinsurance		Allowance for Estimated Uncollectible Reinsurance		Reinsurance Recoverables, Net of Allowance for Estimated Uncollectible Reinsurance		Allowance for Estimated Uncollectible Reinsurance

Balance, beginning of period	$	8,350	$	146	$	8,235	$	92

Cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2020			—				53
Current period change for estimated uncollectible reinsurance			(4)				(5)
Write-offs of uncollectible reinsurance recoverables			—				—
Balance, end of period	$	8,329	$	142	$	8,317	$	140

Of the total reinsurance recoverables at September 30, 2021, after deducting mandatory pools and associations and before allowances for estimated uncollectible reinsurance, $5.77 billion, or 86%, were rated by A.M. Best Company. The Company utilizes updated A.M. Best credit ratings on a quarterly basis when determining the allowance. Of the total rated by A.M. Best Company, 94% were rated A- or better. The remaining 14% of reinsurance recoverables were comprised of the following: 7% related to captive insurance companies, 1% related to the Company’s participation in voluntary pools and 6% related to balances of companies not rated by A.M. Best Company. Certain of the Company's reinsurance recoverables are collateralized by letters of credit, funds held or trust agreements.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

5. ALLOWANCE FOR EXPECTED CREDIT LOSSES, Continued

Contractholder Receivables

The following tables present the balances of contractholder receivables, net of the allowance for expected credit losses, at September 30, 2021 and 2020, and the changes in the allowance for expected credit losses for the three and nine months ended September 30, 2021 and 2020.


	At and For the Three Months Ended September 30, 2021				At and For the Three Months Ended September 30, 2020
(in millions)	Contractholder Receivables, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses		Contractholder Receivables, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses

Balance, beginning of period	$	4,016	$	19	$	4,314	$	22

Current period change for expected credit losses			—				—
Write-offs of uncollectible contractholder receivables			—				1

Balance, end of period	$	4,024	$	19	$	4,347	$	21


	At and For the Nine Months Ended September 30, 2021				At and For the Nine Months Ended September 30, 2020
(in millions)	Contractholder Receivables, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses		Contractholder Receivables, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses

Balance, beginning of period	$	4,242	$	19	$	4,599	$	20

Current period change for expected credit losses			—				2
Write-offs of uncollectible contractholder receivables			—				1

Balance, end of period	$	4,024	$	19	$	4,347	$	21

6. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The following table presents the carrying amount of the Company’s goodwill by segment. Each reportable segment includes goodwill associated with the Company’s international business which is subject to the impact of changes in foreign currency exchange rates.


(in millions)	September 30, 2021		December 31, 2020
Business Insurance	$	2,608	$	2,613
Bond & Specialty Insurance	550		550
Personal Insurance (1)	821		787
Other	26		26
Total	$	4,005	$	3,976

(1) Goodwill at September 30, 2021 included approximately $33 million associated with a business acquired in the first quarter of 2021, which is deductible for tax purposes.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

6. GOODWILL AND OTHER INTANGIBLE ASSETS, Continued

Other Intangible Assets

The following tables present a summary of the Company’s other intangible assets by major asset class.


(at September 30, 2021, in millions)	Gross Carrying Amount		Accumulated Amortization		Net
Subject to amortization
Customer-related	$	104	$	39	$	65
Contract-based (1)	205		187		18
Total subject to amortization	309		226		83
Not subject to amortization	226		—		226
Total	$	535	$	226	$	309


(at December 31, 2020, in millions)	Gross Carrying Amount		Accumulated Amortization		Net
Subject to amortization
Customer-related	$	101	$	31	$	70
Contract-based (1)	205		184		21
Total subject to amortization	306		215		91
Not subject to amortization	226		—		226
Total	$	532	$	215	$	317

(1)Contract-based intangible assets subject to amortization are comprised of fair value adjustments on claims and claim adjustment expense reserves, reinsurance recoverables and other contract-related intangible assets. Fair value adjustments recorded in connection with insurance acquisitions were based on management’s estimate of nominal claims and claim adjustment expense reserves and reinsurance recoverables. The method used calculated a risk adjustment to a risk-free discounted reserve that would, if reserves ran off as expected, produce results that yielded the assumed cost-of-capital on the capital supporting the loss reserves. The fair value adjustments are reported as other intangible assets on the consolidated balance sheet, and the amounts measured in accordance with the acquirer’s accounting policies for insurance contracts have been reported as part of the claims and claim adjustment expense reserves and reinsurance recoverables. The intangible assets are being recognized into income over the expected payment pattern. Because the time value of money and the risk adjustment (cost of capital) components of the intangible assets run off at different rates, the amount recognized in income may be a net benefit in some periods and a net expense in other periods.

Amortization expense of intangible assets was $4 million for each of the three months ended September 30, 2021 and 2020, and $11 million for each of the nine months ended September 30, 2021 and 2020. Amortization expense for all intangible assets subject to amortization is estimated to be $3 million for the remainder of 2021, $14 million in 2022, $13 million in 2023, $12 million in 2024 and $12 million in 2025. Amortization expense for intangible assets arising from insurance contracts acquired in a business combination is estimated to be $1 million for the remainder of 2021, $3 million in 2022, $3 million in 2023, $2 million in 2024 and $2 million in 2025.

7. INSURANCE CLAIM RESERVES

Claims and claim adjustment expense reserves were as follows:


(in millions)	September 30, 2021		December 31, 2020
Property-casualty	$	56,795	$	54,510
Accident and health	10		11
Total	$	56,805	$	54,521

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

7. INSURANCE CLAIM RESERVES, Continued

The following table presents a reconciliation of beginning and ending property casualty reserve balances for claims and claim adjustment expenses:


	Nine Months Ended September 30,
(in millions)	2021		2020
Claims and claim adjustment expense reserves at beginning of year	$	54,510	$	51,836
Less reinsurance recoverables on unpaid losses	8,153		8,035
Cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2020	—		53
Net reserves at beginning of year	46,357		43,854

Estimated claims and claim adjustment expenses for claims arising in the current year	15,813		14,809
Estimated decrease in claims and claim adjustment expenses for claims arising in prior years	(398)		(108)
Total increases	15,415		14,701

Claims and claim adjustment expense payments for claims arising in:
Current year	5,653		4,960
Prior years	7,339		7,246
Total payments	12,992		12,206
Unrealized foreign exchange gain	(18)		(62)
Net reserves at end of period	48,762		46,287
Plus reinsurance recoverables on unpaid losses	8,033		8,119
Claims and claim adjustment expense reserves at end of period	$	56,795	$	54,406

Gross claims and claim adjustment expense reserves at September 30, 2021 increased by $2.29 billion from December 31, 2020, primarily reflecting the impacts of (i) catastrophe losses in the first nine months of 2021, (ii) loss cost trends for the current accident year and (iii) reduced claim settlement activity largely due to the disruptions in the judicial system related to COVID-19.

Reinsurance recoverables on unpaid losses at September 30, 2021 decreased by $120 million from December 31, 2020, primarily reflecting the impacts of cash collections in the first nine months of 2021, partially offset by catastrophe losses in the same period.

PG&E Corporation and Pacific Gas and Electric Company (together, PG&E) emerged from bankruptcy on July 1, 2020, the date the Debtors' and Shareholder Proponents' Joint Chapter 11 Plan of Reorganization Dated June 19, 2020 (the Plan) became effective. In accordance with the terms of the Plan, PG&E funded a trust from which the Company and other subrogation claimants have received, and/or will receive, recoveries related to the 2017 and 2018 California wildfires. In the third quarter of 2020, the Company recognized a subrogation benefit related to these claims of $403 million (the Company's estimate of its total recoveries from the trust prior to its expiration in 2025, pre-tax and net of expenses and amounts that inure to the benefit of the Company's reinsurers).

Prior Year Reserve Development

The following disclosures regarding reserve development are on a “net of reinsurance” basis.

For the nine months ended September 30, 2021 and 2020, estimated claims and claim adjustment expenses incurred included $398 million and $108 million, respectively, of net favorable development for claims arising in prior years, including $443 million and $171 million, respectively, of net favorable prior year reserve development, and $36 million of accretion of discount in each period that impacted the Company's results of operations.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

7. INSURANCE CLAIM RESERVES, Continued

Business Insurance. Net unfavorable prior year reserve development in the third quarter of 2021 totaled $108 million, primarily driven by an increase in asbestos reserves of $225 million, partially offset by better than expected loss experience in domestic operations in the workers' compensation product line for multiple accident years. Net unfavorable prior year reserve development in the third quarter of 2020 totaled $220 million, primarily driven by an increase in asbestos reserves of $295 million, primarily in the segment's domestic operations, higher than expected loss experience in the segment's domestic operations in the general liability product line (excluding asbestos and environmental) for primary and excess coverages, primarily due to an increase to the reserves in the Company's run-off operations related to a single insured arising out of policies issued more than 20 years ago and in the commercial multi-peril product line (excluding PG&E subrogation recoveries and asbestos and environmental) for recent accident years, partially offset by PG&E subrogation recoveries of $81 million described above and better than expected loss experience in the segment's domestic operations in the workers' compensation product line for multiple accident years.

Net favorable prior year reserve development in the first nine months of 2021 totaled $99 million, primarily driven by better than expected loss experience in domestic operations in the workers' compensation product line for multiple accident years and in the commercial automobile and commercial property product lines for recent accident years and better than expected loss experience in the segment's international operations, partially offset by an increase in asbestos reserves of $225 million, an increase in other reserves related to run-off operations and an increase to environmental reserves. Net unfavorable prior year reserve development in the first nine months of 2020 totaled $215 million, primarily driven by an increase in asbestos reserves of $295 million, primarily in the segment's domestic operations, higher than expected loss experience in the segment's domestic operations in the general liability product line (excluding asbestos and environmental) for primary and excess coverages and the commercial automobile product line and the commercial multi-peril product line (excluding PG&E subrogation recoveries and asbestos and environmental) for recent accident years, partially offset by better than expected loss experience in the segment's domestic operations in the workers' compensation product line and the commercial property product line (excluding PG&E subrogation recoveries) for multiple accident years, as well as PG&E subrogation recoveries of $81 million described above.

Bond & Specialty Insurance. Net favorable prior year reserve development in the third quarter of 2021 totaled $22 million, primarily driven by better than expected loss experience in the segment's domestic operations in the fidelity and surety product lines for recent accident years. There was no net prior year reserve development in the third quarter of 2020.

Net favorable prior year reserve development in the first nine months of 2021 totaled $81 million, primarily driven by better than expected loss experience in the segment's domestic operations in the fidelity and surety product lines for recent accident years, partially offset by higher than expected loss experience in the general liability product line for management liability coverages for multiple accident years. Net unfavorable prior year reserve development in the first nine months of 2020 totaled $33 million, primarily driven by higher than expected loss experience in the segment's domestic operations in the general liability product line for management liability coverages for recent accident years.

Personal Insurance. Net favorable prior year reserve development in the third quarter of 2021 totaled $30 million, primarily driven by better than expected loss experience in the segment's domestic operations in the homeowners and other product line for recent accident years. Net favorable prior year reserve development in the third quarter of 2020 totaled $362 million, primarily driven by $322 million of PG&E subrogation recoveries described above and better than expected loss experience in the segment's domestic operations in the automobile product line for recent accident years.

Net favorable prior year reserve development in the first nine months of 2021 totaled $263 million, primarily driven by better than expected loss experience in the segment's domestic operations in both the homeowners and other and automobile product lines for recent accident years. Net favorable prior year reserve development in the first nine months of 2020 totaled $419 million, primarily driven by $322 million of PG&E subrogation recoveries described above and better than expected loss experience in the segment's domestic operations in the automobile product line for recent accident years.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

8. OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table presents the changes in the Company’s accumulated other comprehensive income (AOCI) for the three months and nine months ended September 30, 2021.


	Changes in Net Unrealized Gains on Investment Securities
(in millions)	Having No Credit Losses Recognized in the Consolidated Statement of Income		Having Credit Losses Recognized in the Consolidated Statement of Income		Net Benefit Plan Assets and Obligations Recognized in Shareholders’ Equity		Net Unrealized Foreign Currency Translation		Total Accumulated Other Comprehensive Income

Balance, June 30, 2021	$	3,057	$	182	$	(792)	$	(678)	$	1,769

Other comprehensive income (loss) (OCI) before reclassifications, net of tax	(530)		—		—		(84)		(614)
Amounts reclassified from AOCI, net of tax	(10)		—		21		—		11
Net OCI, current period	(540)		—		21		(84)		(603)
Balance, September 30, 2021	$	2,517	$	182	$	(771)	$	(762)	$	1,166


	Changes in Net Unrealized Gains on Investment Securities
(in millions)	Having No Credit Losses Recognized in the Consolidated Statement of Income		Having Credit Losses Recognized in the Consolidated Statement of Income		Net Benefit Plan Assets and Obligations Recognized in Shareholders’ Equity		Net Unrealized Foreign Currency Translation		Total Accumulated Other Comprehensive Income

Balance, December 31, 2020	$	3,892	$	182	$	(832)	$	(740)	$	2,502

Other comprehensive income (loss) (OCI) before reclassifications, net of tax	(1,335)		—		—		(22)		(1,357)
Amounts reclassified from AOCI, net of tax	(40)		—		61		—		21
Net OCI, current period	(1,375)		—		61		(22)		(1,336)
Balance, September 30, 2021	$	2,517	$	182	$	(771)	$	(762)	$	1,166

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

8. OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME, Continued

The following table presents the pre-tax components of the Company’s other comprehensive income (loss) and the related income tax expense (benefit).


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2021		2020		2021		2020

Changes in net unrealized gains on investment securities:
Having no credit losses recognized in the consolidated statement of income	$	(686)	$	217	$	(1,749)	$	2,001
Income tax expense (benefit)	(146)		46		(374)		428
Net of taxes	(540)		171		(1,375)		1,573

Having credit losses recognized in the consolidated statement of income	—		(7)		—		(10)
Income tax benefit	—		(2)		—		(3)
Net of taxes	—		(5)		—		(7)

Net changes in benefit plan assets and obligations	26		20		77		64
Income tax expense	5		4		16		13
Net of taxes	21		16		61		51

Net changes in unrealized foreign currency translation	(91)		79		(25)		(137)
Income tax expense (benefit)	(7)		5		(3)		(18)
Net of taxes	(84)		74		(22)		(119)

Total other comprehensive income (loss)	(751)		309		(1,697)		1,918
Total income tax expense (benefit)	(148)		53		(361)		420
Total other comprehensive income (loss), net of taxes	$	(603)	$	256	$	(1,336)	$	1,498

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

8. OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME, Continued

The following table presents the pre-tax and related income tax (expense) benefit components of the amounts reclassified from the Company’s AOCI to the Company’s consolidated statement of income.


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2021		2020		2021		2020

Reclassification adjustments related to unrealized gains on investment securities:
Having no credit losses recognized in the consolidated statement of income (1)	$	(12)	$	(23)	$	(50)	$	(31)
Income tax expense (2)	(2)		(5)		(10)		(7)
Net of taxes	(10)		(18)		(40)		(24)

Having credit losses recognized in the consolidated statement of income (1)	—		—		—		—
Income tax benefit (2)	—		—		—		—
Net of taxes	—		—		—		—

Reclassification adjustment related to benefit plan assets and obligations:
Claims and claim adjustment expenses (3)	10		8		31		26
General and administrative expenses (3)	16		12		46		37
Total	26		20		77		63
Income tax benefit (2)	5		4		16		13
Net of taxes	21		16		61		50

Reclassification adjustment related to foreign currency translation (1)	—		—		—		—
Income tax benefit (2)	—		—		—		—
Net of taxes	—		—		—		—

Total reclassifications	14		(3)		27		32
Total income tax (expense) benefit	3		(1)		6		6
Total reclassifications, net of taxes	$	11	$	(2)	$	21	$	26

(1) (Increases) decreases net realized investment gains (losses) on the consolidated statement of income.

(2) (Increases) decreases income tax expense on the consolidated statement of income.

(3) Increases (decreases) expenses on the consolidated statement of income.

9. DEBT

Debt Issuance. On June 8, 2021, the Company issued $750 million aggregate principal amount of 3.05% senior notes that will mature on June 8, 2051. The net proceeds of the issuance, after the deduction of the underwriting discount and expenses payable by the Company, totaled approximately $739 million. Interest on the senior notes is payable semi-annually in arrears on June 8 and December 8. Prior to December 8, 2050, the senior notes may be redeemed, in whole or in part, at the Company’s option, at any time or from time to time, at a redemption price equal to the greater of (a) 100% of the principal amount of any senior notes to be redeemed or (b) the sum of the present values of the remaining scheduled payments of principal and interest to but excluding December 8, 2050 on any senior notes to be redeemed (exclusive of interest accrued to the date of redemption) discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the then current Treasury rate (as defined in the senior notes), plus 15 basis points. On or after

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

9. DEBT, Continued

December 8, 2050, the senior notes may be redeemed, in whole or in part, at the Company’s option, at any time or from time to time, at a redemption price equal to 100% of the principal amount of any senior notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

10. COMMON SHARE REPURCHASES

During the three and nine months ended September 30, 2021, the Company repurchased 3.8 million and 8.8 million common shares, respectively, under its share repurchase authorizations for total cost of $600 million and $1.36 billion, respectively. The average cost per share repurchased was $155.57 and $153.93, respectively. In addition, the Company acquired 12,181 shares and 0.3 million shares for a total cost of approximately $1 million and $43 million during the three and nine months ended September 30, 2021, respectively, that were not part of its publicly announced share repurchase authorizations. These shares consisted of shares retained to cover payroll withholding taxes in connection with the vesting of restricted stock unit awards and performance share awards, and shares used by employees to cover the price of certain stock options that were exercised.

On April 20, 2021, the Board of Directors approved a share repurchase authorization that added an additional $5.0 billion of repurchase capacity. At September 30, 2021, the Company had $4.81 billion of capacity remaining under its share repurchase authorizations.

11. EARNINGS PER SHARE

The following is a reconciliation of the income and share data used in the basic and diluted earnings per share computations for the periods presented:


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

Basic and Diluted
Net income, as reported	$	662	$	827	$	2,329	$	1,387
Participating share-based awards — allocated income	(5)		(6)		(17)		(9)
Net income available to common shareholders — basic and diluted	$	657	$	821	$	2,312	$	1,378

Common Shares
Basic
Weighted average shares outstanding	247.7		253.3		250.1		253.5

Diluted
Weighted average shares outstanding	247.7		253.3		250.1		253.5
Weighted average effects of dilutive securities — stock options and performance shares	2.4		1.0		2.3		1.0
Total	250.1		254.3		252.4		254.5

Net Income per Common Share
Basic	$	2.65	$	3.24	$	9.24	$	5.44
Diluted	$	2.62	$	3.23	$	9.16	$	5.41

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

12. SHARE-BASED INCENTIVE COMPENSATION

The following information relates to fully vested stock option awards at September 30, 2021:


Stock Options	Number	Weighted Average Exercise Price		Weighted Average Contractual Life Remaining	Aggregate Intrinsic Value ($ in millions)
Vested at end of period (1)	7,292,324	$	124.13	6.1 years	$	203
Exercisable at end of period	4,340,430	$	118.45	4.6 years	$	146

(1)Represents awards for which the requisite service has been rendered, including those that are retirement eligible.

The total compensation cost for all share-based incentive compensation awards recognized in earnings was $37 million and $33 million for the three months ended September 30, 2021 and 2020, respectively, and $126 million and $113 million for the nine months ended September 30, 2021 and 2020, respectively. The related tax benefits recognized in the consolidated statement of income were $7 million and $6 million for the three months ended September 30, 2021 and 2020, respectively, and $22 million and $20 million for the nine months ended September 30, 2021 and 2020, respectively.

The total unrecognized compensation cost related to all nonvested share-based incentive compensation awards at September 30, 2021 was $184 million, which is expected to be recognized over a weighted-average period of 1.9 years.

13. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS

The following table summarizes the components of net periodic benefit cost (benefit) for the Company’s pension and postretirement benefit plans recognized in the consolidated statement of income for the three months ended September 30, 2021 and 2020.


	Pension Plans				Postretirement Benefit Plans
(for the three months ended September 30, in millions)	2021		2020		2021		2020

Net Periodic Benefit Cost (Benefit):
Service cost	$	35	$	34	$	—	$	—

Non-service cost (benefit):
Interest cost on benefit obligation	$	21	$	29	$	1	$	1
Expected return on plan assets	(69)		(69)		—		—

Amortization of unrecognized:
Prior service benefit	(1)		(1)		(1)		(1)
Net actuarial (gain) loss	28		23		(1)		(1)
Total non-service cost (benefit)	(21)		(18)		(1)		(1)
Net periodic benefit cost (benefit)	$	14	$	16	$	(1)	$	(1)

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

13. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS, Continued

The following table indicates the line items in which the respective service cost and non-service cost (benefit) are presented in the consolidated statement of income for the three months ended September 30, 2021 and 2020.


	Pension Plans				Postretirement Benefit Plans
(for the three months ended September 30, in millions)	2021		2020		2021		2020
Service Cost:
Claims and claim adjustment expenses	$	14	$	14	$	—	$	—
General and administrative expenses	21		20		—		—
Total service cost	35		34		—		—

Non-Service Cost (Benefit):
Claims and claim adjustment expenses	(9)		(8)		—		(1)
General and administrative expenses	(12)		(10)		(1)		—
Total non-service cost (benefit)	(21)		(18)		(1)		(1)
Net periodic benefit cost (benefit)	$	14	$	16	$	(1)	$	(1)


	Pension Plans				Postretirement Benefit Plans
(for the nine months ended September 30, in millions)	2021		2020		2021		2020
Net Periodic Benefit Cost (Benefit):
Service cost	$	106	$	100	$	—	$	—
Non-service cost (benefit):
Interest cost on benefit obligation	62		86		2		3
Expected return on plan assets	(206)		(206)		—		—
Amortization of unrecognized:
Prior service benefit	(1)		(1)		(3)		(3)
Net actuarial (gain) loss	82		69		(2)		(2)
Total non-service cost (benefit)	(63)		(52)		(3)		(2)
Net periodic benefit cost (benefit)	$	43	$	48	$	(3)	$	(2)

The following table indicates the line items in which the respective service cost and non-service benefit cost (benefit) are presented in the consolidated statement of income for the nine months ended September 30, 2021 and 2020.


	Pension Plans				Postretirement Benefit Plans
(for the nine months ended September 30, in millions)	2021		2020		2021		2020
Service Cost:
Claims and claim adjustment expenses	$	43	$	42	$	—	$	—
General and administrative expenses	63		58		—		—
Total service cost	106		100		—		—
Non-Service Cost (Benefit):
Claims and claim adjustment expenses	(26)		(22)		(1)		(1)
General and administrative expenses	(37)		(30)		(2)		(1)
Total non-service cost (benefit)	(63)		(52)		(3)		(2)
Net periodic benefit cost (benefit)	$	43	$	48	$	(3)	$	(2)

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

14. LEASES

The Company enters into lease agreements for real estate that is primarily used for office space in the ordinary course of business. These leases are accounted for as operating leases, whereby lease expense is recognized on a straight-line basis over the term of the lease, and a right-of-use asset and lease liability is recognized as part of other assets and other liabilities, respectively, in the consolidated balance sheet.

Most leases include an option to extend or renew the lease term. The exercise of the renewal option is at the Company's discretion. The operating lease liability includes lease payments related to options to extend or renew the lease term if the Company is reasonably certain of exercising those options. The Company, in determining the present value of lease payments, utilizes either the rate implicit in the lease, if that rate is readily determinable, or the Company’s incremental secured borrowing rate commensurate with the term of the underlying lease.

Lease expense is included in general and administrative expenses in the consolidated statement of income. Additional information regarding the Company’s real estate operating leases is as follows:


	Three Months Ended September 30,			Nine Months Ended September 30,
(in millions)	2021			2020			2021			2020

Lease cost
Operating leases	$	22		$	23		$	67		$	71
Short-term leases (1)	—			1			1			2

Lease expense	22			24			68			73
Less: sublease income (2)	—			—			—			—
Net lease cost	$	22		$	24		$	68		$	73

Other information on operating leases

Cash payments to settle a lease liability reported in cash flows	$	25		$	27		$	78		$	82
Right-of-use assets obtained in exchange for new lease liabilities	$	2		$	8		$	21		$	26
Weighted average discount rate	2.37		%	2.86		%	2.37		%	2.86		%
Weighted average remaining lease term	4.6 years			4.9 years			4.6 years			4.9 years

(1) Leases with a term of twelve months or less are not recorded on the consolidated balance sheet.

(2) Sublease income consists of rent from third parties of office space and is recognized as part of other revenues in the consolidated statement of income.

15. CONTINGENCIES, COMMITMENTS AND GUARANTEES

Contingencies

The major pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or to which any of the Company’s properties is subject are described below.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

15. CONTINGENCIES, COMMITMENTS AND GUARANTEES, Continued

Asbestos and Environmental Claims and Litigation

In the ordinary course of its insurance business, the Company has received and continues to receive claims for insurance arising under policies issued by the Company asserting alleged injuries and damages from asbestos- and environmental-related exposures that are the subject of related coverage litigation. The Company is defending asbestos- and environmental-related litigation vigorously and believes that it has meritorious defenses; however, the outcomes of these disputes are uncertain. In this regard, the Company employs dedicated specialists and comprehensive resolution strategies to manage asbestos and environmental loss exposure, including settling litigation under appropriate circumstances. Currently, it is not possible to predict legal outcomes and their impact on future loss development for claims and litigation relating to asbestos and environmental claims. Any such development could be affected by future court decisions and interpretations, as well as future changes, if any, in applicable legislation. Because of these uncertainties, additional liabilities may arise for amounts in excess of the Company’s current insurance reserves. In addition, the Company’s estimate of ultimate claims and claim adjustment expenses may change. These additional liabilities or changes in estimates, or a range of either, cannot now be reasonably estimated and could result in income statement charges that could be material to the Company’s results of operations in future periods.

Other Proceedings Not Arising Under Insurance Contracts or Reinsurance Agreements

The Company is involved in other lawsuits, including lawsuits alleging extra-contractual damages relating to insurance contracts or reinsurance agreements, that do not arise under insurance contracts or reinsurance agreements. The legal costs associated with such lawsuits are expensed in the period in which the costs are incurred. Based upon currently available information, the Company does not believe it is reasonably possible that any such lawsuit or related lawsuits would be material to the Company’s results of operations or would have a material adverse effect on the Company’s financial position or liquidity.

Other Commitments and Guarantees

Commitments

Investment Commitments — The Company has unfunded commitments to private equity limited partnerships, real estate partnerships and others. These commitments totaled $1.64 billion and $1.76 billion at September 30, 2021 and December 31, 2020, respectively.

Guarantees

The maximum amount of the Company’s contingent obligation for indemnifications related to the sale of businesses that are quantifiable was $351 million at September 30, 2021.

The maximum amount of the Company’s obligation related to the guarantee of certain insurance policy obligations of a former insurance subsidiary was $480 million at September 30, 2021, all of which is indemnified by a third party. For more information regarding Company guarantees, see note 17 of notes to the consolidated financial statements in the Company’s 2020 Annual Report.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

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