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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

Revenues
Premiums	$	8,317	$	7,616	$	16,331	$	15,002
Net investment income	707		818		1,344		1,519
Fee income	100		104		203		205
Net realized investment gains (losses)	(95)		61		(118)		105
Other revenues	107		88		185		169

Total revenues	9,136		8,687		17,945		17,000

Claims and expenses
Claims and claim adjustment expenses	5,803		5,045		10,842		10,015
Amortization of deferred acquisition costs	1,365		1,254		2,675		2,461
General and administrative expenses	1,223		1,174		2,414		2,337
Interest expense	88		83		175		165
Total claims and expenses	8,479		7,556		16,106		14,978

Income before income taxes	657		1,131		1,839		2,022
Income tax expense	106		197		270		355
Net income	$	551	$	934	$	1,569	$	1,667

Net income per share
Basic	$	2.29	$	3.70	$	6.50	$	6.58
Diluted	$	2.27	$	3.66	$	6.43	$	6.53

Weighted average number of common shares outstanding
Basic	238.4		250.7		239.7		251.4
Diluted	241.1		253.1		242.4		253.6

Cash dividends declared per common share	$	0.93	$	0.88	$	1.81	$	1.73

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

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(in millions)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

Net income	$	551	$	934	$	1,569	$	1,667

Other comprehensive income (loss)
Changes in net unrealized gains (losses) on investment securities:
Having no credit losses recognized in the consolidated statement of income	(3,045)		533		(7,874)		(1,063)
Having credit losses recognized in the consolidated statement of income	(2)		—		(3)		—
Net changes in benefit plan assets and obligations	11		26		22		51
Net changes in unrealized foreign currency translation	(174)		40		(172)		66
Other comprehensive income (loss) before income taxes	(3,210)		599		(8,027)		(946)
Income tax expense (benefit)	(657)		121		(1,679)		(213)
Other comprehensive income (loss), net of taxes	(2,553)		478		(6,348)		(733)
Comprehensive income (loss)	$	(2,002)	$	1,412	$	(4,779)	$	934

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

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in millions)


	June 30, 2022		December 31, 2021
	(Unaudited)
Assets
Fixed maturities, available for sale, at fair value (amortized cost $75,917 and $74,751; allowance for expected credit losses of $4 and $3)	$	71,099	$	77,810
Equity securities, at fair value (cost $755 and $749)	800		893
Real estate investments	970		979
Short-term securities	3,569		3,836
Other investments	4,021		3,857
Total investments	80,459		87,375
Cash	710		761
Investment income accrued	612		615
Premiums receivable (net of allowance for expected credit losses of $89 and $107)	9,132		8,085
Reinsurance recoverables (net of allowance for estimated uncollectible reinsurance of $132 and $141)	8,509		8,452
Ceded unearned premiums	1,196		902
Deferred acquisition costs	2,776		2,542
Deferred taxes	1,374		—
Contractholder receivables (net of allowance for expected credit losses of $18 and $21)	3,735		3,890
Goodwill	3,967		4,008
Other intangible assets	294		306
Other assets	3,823		3,530
Total assets	$	116,587	$	120,466

Liabilities
Claims and claim adjustment expense reserves	$	57,983	$	56,907
Unearned premium reserves	17,811		16,469
Contractholder payables	3,753		3,911
Payables for reinsurance premiums	620		384
Deferred taxes	—		289
Debt	7,291		7,290
Other liabilities	6,255		6,329
Total liabilities	93,713		91,579

Shareholders’ equity
Common stock (1,750.0 shares authorized; 237.3 and 241.2 shares issued and outstanding)	24,419		24,154
Retained earnings	42,684		41,555
Accumulated other comprehensive income (loss)	(5,155)		1,193
Treasury stock, at cost (547.7 and 541.5 shares)	(39,074)		(38,015)
Total shareholders’ equity	22,874		28,887
Total liabilities and shareholders’ equity	$	116,587	$	120,466

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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

Common stock
Balance, beginning of period	$	24,348	$	23,905	$	24,154	$	23,743
Employee share-based compensation	30		61		165		169
Compensation amortization under share-based plans and other changes	41		36		100		90
Balance, end of period	24,419		24,002		24,419		24,002

Retained earnings
Balance, beginning of period	42,359		39,285		41,555		38,771


Net income	551		934		1,569		1,667
Dividends	(225)		(224)		(439)		(440)
Other	(1)		3		(1)		—
Balance, end of period	42,684		39,998		42,684		39,998

Accumulated other comprehensive income (loss), net of tax
Balance, beginning of period	(2,602)		1,291		1,193		2,502


Other comprehensive income (loss)	(2,553)		478		(6,348)		(733)
Balance, end of period	(5,155)		1,769		(5,155)		1,769

Treasury stock, at cost
Balance, beginning of period	(38,574)		(36,212)		(38,015)		(35,815)
Treasury stock acquired — share repurchase authorizations	(500)		(400)		(1,000)		(756)
Net shares acquired related to employee share-based compensation plans	—		(1)		(59)		(42)
Balance, end of period	(39,074)		(36,613)		(39,074)		(36,613)

Total shareholders’ equity	$	22,874	$	29,156	$	22,874	$	29,156

Common shares outstanding
Balance, beginning of period	240.0		251.5		241.2		252.4
Treasury stock acquired — share repurchase authorizations	(2.9)		(2.6)		(5.8)		(5.0)
Net shares issued under employee share-based compensation plans	0.2		0.6		1.9		2.1
Balance, end of period	237.3		249.5		237.3		249.5

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)


	Six Months Ended June 30,
	2022		2021
Cash flows from operating activities
Net income	$	1,569	$	1,667
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment (gains) losses	118		(105)
Depreciation and amortization	444		450
Deferred federal income tax expense (benefit)	(28)		57
Amortization of deferred acquisition costs	2,675		2,461
Equity in income from other investments	(295)		(513)
Premiums receivable	(1,071)		(718)
Reinsurance recoverables	(84)		154
Deferred acquisition costs	(2,917)		(2,601)
Claims and claim adjustment expense reserves	1,272		1,313
Unearned premium reserves	1,398		968
Other	(440)		(94)
Net cash provided by operating activities	2,641		3,039
Cash flows from investing activities
Proceeds from maturities of fixed maturities	3,697		4,347
Proceeds from sales of investments:
Fixed maturities	2,701		2,482
Equity securities	84		45

Other investments	173		195
Purchases of investments:
Fixed maturities	(7,998)		(9,462)
Equity securities	(86)		(41)
Real estate investments	(16)		(14)
Other investments	(252)		(221)
Net sales (purchases) of short-term securities	257		(194)
Securities transactions in the course of settlement	236		229
Acquisitions, net of cash acquired	(4)		(38)
Other	(159)		(113)
Net cash used in investing activities	(1,367)		(2,785)

Cash flows from financing activities
Treasury stock acquired — share repurchase authorizations	(1,000)		(756)
Treasury stock acquired — net employee share-based compensation	(59)		(42)
Dividends paid to shareholders	(436)		(436)

Issuance of debt	—		739
Issuance of common stock — employee share options	194		206
Net cash used in financing activities	(1,301)		(289)
Effect of exchange rate changes on cash	(24)		3
Net decrease in cash	(51)		(32)
Cash at beginning of year	761		721
Cash at end of period	$	710	$	689

Supplemental disclosure of cash flow information
Income taxes paid	$	552	$	342
Interest paid	$	174	$	163

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, 2021 (the Company’s 2021 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. Certain reclassifications have been made to the prior period to conform to the 2022 presentation.

Adoption of Accounting Standards

For information regarding accounting standards that the Company adopted during the periods presented, see note 1 of the notes to the consolidated financial statements in the Company’s 2021 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 the notes to the consolidated financial statements in the Company’s 2021 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 (loss) and total assets by reportable business segments:


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

2022
Premiums	$	4,218	$	851	$	3,248	$	8,317
Net investment income	521		64		122		707
Fee income	93		—		7		100
Other revenues	85		4		18		107
Total segment revenues (1)	$	4,917	$	919	$	3,395	$	9,231
Segment income (loss) (1)	$	666	$	228	$	(193)	$	701

2021
Premiums	$	3,880	$	776	$	2,960	$	7,616
Net investment income	615		64		139		818
Fee income	97		—		7		104
Other revenues	57		7		24		88
Total segment revenues (1)	$	4,649	$	847	$	3,130	$	8,626
Segment income (1)	$	643	$	187	$	121	$	951

(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 excludes the after-tax impact of net realized investment gains (losses) and income (loss) from "interest expense and other."


(For the six months ended June 30, in millions)	Business Insurance		Bond & Specialty Insurance		Personal Insurance		Total Reportable Segments
2022
Premiums	$	8,289	$	1,671	$	6,371	$	16,331
Net investment income	989		123		232		1,344
Fee income	189		—		14		203
Other revenues	138		8		39		185
Total segment revenues (1)	$	9,605	$	1,802	$	6,656	$	18,063
Segment income (1)	$	1,335	$	445	$	32	$	1,812

2021
Premiums	$	7,679	$	1,519	$	5,804	$	15,002
Net investment income	1,138		123		258		1,519
Fee income	192		—		13		205
Other revenues	110		12		47		169
Total segment revenues (1)	$	9,119	$	1,654	$	6,122	$	16,895
Segment income (1)	$	960	$	324	$	435	$	1,719

(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 excludes 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 June 30,				Six Months Ended June 30,
(in millions)	2022		2021		2022		2021
Revenue reconciliation
Earned premiums
Business Insurance:
Domestic:
Workers’ compensation	$	864	$	810	$	1,694	$	1,621
Commercial automobile	735		709		1,448		1,404
Commercial property	638		556		1,246		1,087
General liability	700		618		1,388		1,225
Commercial multi-peril	1,010		899		1,977		1,769
Other	16		14		33		28
Total Domestic	3,963		3,606		7,786		7,134
International	255		274		503		545
Total Business Insurance	4,218		3,880		8,289		7,679
Bond & Specialty Insurance:
Domestic:
Fidelity and surety	295		276		569		542
General liability	385		347		758		678
Other	54		55		109		111
Total Domestic	734		678		1,436		1,331
International	117		98		235		188
Total Bond & Specialty Insurance	851		776		1,671		1,519
Personal Insurance:
Domestic:
Automobile	1,511		1,405		2,969		2,775
Homeowners and Other	1,570		1,377		3,066		2,685
Total Domestic	3,081		2,782		6,035		5,460
International	167		178		336		344
Total Personal Insurance	3,248		2,960		6,371		5,804
Total earned premiums	8,317		7,616		16,331		15,002
Net investment income	707		818		1,344		1,519
Fee income	100		104		203		205
Other revenues	107		88		185		169
Total segment revenues	9,231		8,626		18,063		16,895

Net realized investment gains (losses)	(95)		61		(118)		105
Total revenues	$	9,136	$	8,687	$	17,945	$	17,000
Income reconciliation, net of tax
Total segment income	$	701	$	951	$	1,812	$	1,719
Interest Expense and Other (1)	(76)		(72)		(150)		(141)
Core income	625		879		1,662		1,578
Net realized investment gains (losses)	(74)		47		(93)		81
Impact of changes in tax laws and/or tax rates (2)	—		8		—		8
Net income	$	551	$	934	$	1,569	$	1,667

(1)The primary component of Interest Expense and Other was after-tax interest expense of $69 million and $65 million for the three months ended June 30, 2022 and 2021, respectively, and $138 million and $130 million for the six months ended June 30, 2022 and 2021, 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)	June 30, 2022		December 31, 2021
Asset reconciliation
Business Insurance	$	87,092	$	90,353
Bond & Specialty Insurance	10,167		10,146
Personal Insurance	18,366		18,983
Total assets by reportable segment	115,625		119,482
Other assets (1)	962		984
Total consolidated assets	$	116,587	$	120,466

(1)The primary components of other assets at both June 30, 2022 and December 31, 2021 were the 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 June 30, 2022, in millions)			Gains		Losses
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	3,845	$	—	$	7	$	264	$	3,588
Obligations of U.S. states, municipalities and political subdivisions:
Local general obligation	19,959		—		55		1,593		18,421
Revenue	11,174		—		38		763		10,449
State general obligation	1,169		—		6		75		1,100
Pre-refunded	3,566		—		72		—		3,638
Total obligations of U.S. states, municipalities and political subdivisions	35,868		—		171		2,431		33,608
Debt securities issued by foreign governments	1,048		—		1		47		1,002
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	1,795		—		15		120		1,690
Corporate and all other bonds	33,361		4		32		2,178		31,211
Total	$	75,917	$	4	$	226	$	5,040	$	71,099

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, 2021, in millions)			Gains		Losses
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	3,574	$	—	$	20	$	32	$	3,562
Obligations of U.S. states, municipalities and political subdivisions:
Local general obligation	18,668		—		1,045		46		19,667
Revenue	11,274		—		693		27		11,940
State general obligation	1,158		—		67		2		1,223
Pre-refunded	3,825		—		207		—		4,032
Total obligations of U.S. states, municipalities and political subdivisions	34,925		—		2,012		75		36,862
Debt securities issued by foreign governments	1,041		—		7		7		1,041
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	1,754		—		68		5		1,817
Corporate and all other bonds	33,457		3		1,249		175		34,528
Total	$	74,751	$	3	$	3,356	$	294	$	77,810

Pre-refunded bonds of $3.64 billion and $4.03 billion at June 30, 2022 and December 31, 2021, respectively, were bonds for which U.S. states or municipalities have established irrevocable trusts that are 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 the sales of fixed maturities classified as available for sale were $2.70 billion and $2.48 billion during the six months ended June 30, 2022 and 2021, respectively. Gross gains of $10 million and $43 million and gross losses of $8 million and $5 million were realized on those sales during the six months ended June 30, 2022 and 2021, respectively.

Equity Securities

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


							Fair
(at June 30, 2022, in millions)	Cost		Gross Gains		Gross Losses		Value
Common stock	$	706	$	66	$	27	$	745
Non-redeemable preferred stock	49		8		2		55
Total	$	755	$	74	$	29	$	800


							Fair
(at December 31, 2021, in millions)	Cost		Gross Gains		Gross Losses		Value
Common stock	$	694	$	137	$	4	$	827
Non-redeemable preferred stock	55		11		—		66
Total	$	749	$	148	$	4	$	893

For the six months ended June 30, 2022 and 2021, the Company recognized $(85) million and $51 million of net gains (losses) on equity securities still held as of June 30, 2022 and 2021, 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 June 30, 2022 and December 31, 2021, the aggregate fair value and gross unrealized loss by the 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 the notes to the consolidated financial statements in the Company’s 2021 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 the notes to the consolidated financial statements in the Company’s 2021 Annual Report to determine whether a credit loss impairment exists.


	Less than 12 months				12 months or longer				Total
(at June 30, 2022, 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	$	2,506	$	235	$	221	$	29	$	2,727	$	264
Obligations of U.S. states, municipalities and political subdivisions	19,690		2,201		1,117		230		20,807		2,431
Debt securities issued by foreign governments	805		34		136		13		941		47
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	1,476		118		21		2		1,497		120
Corporate and all other bonds	25,489		1,818		1,917		360		27,406		2,178
Total	$	49,966	$	4,406	$	3,412	$	634	$	53,378	$	5,040


	Less than 12 months				12 months or longer				Total
(at December 31, 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	$	2,438	$	32	$	5	$	—	$	2,443	$	32
Obligations of U.S. states, municipalities and political subdivisions	3,873		69		153		6		4,026		75
Debt securities issued by foreign governments	452		7		7		—		459		7
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	426		5		1		—		427		5
Corporate and all other bonds	7,306		153		436		22		7,742		175
Total	$	14,495	$	266	$	602	$	28	$	15,097	$	294

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

3. INVESTMENTS, Continued

The following table summarizes, for all fixed maturities reported at fair value for which fair value is less than 80% of amortized cost at June 30, 2022, the gross unrealized investment loss by length of time those securities have continuously been in an unrealized loss position of greater than 20% of amortized cost:


	Period For Which Fair Value is Less Than 80% of Amortized Cost
(at June 30, 2022, in millions)	3 months or less		Greater than 3 months, 6 months or less		Greater than 6 months, 12 months or less		Greater than 12 months		Total
Fixed maturities
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	—	$	—	$	—	$	—	$	—
Obligations of U.S. states, municipalities and political subdivisions	807		195		—		—		1,002
Debt securities issued by foreign governments	—		—		—		—		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	—		—		—		—		—
Corporate and all other bonds	116		—		—		—		116
Total	$	923	$	195	$	—	$	—	$	1,118

At December 31, 2021, the Company had no fixed maturity investments reported at fair value for which fair value was less than 80% of amortized cost. The increase in fixed maturities in an unrealized loss position from December 31, 2021 through June 30, 2022 was primarily due to higher interest rates. These unrealized losses at June 30, 2022 represented less than 2% of the fixed maturity portfolio on a pre-tax basis and approximately 5% of shareholders' equity on an after-tax basis.

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 Corporate and All Other Bonds (no other categories of fixed maturities currently have an allowance for expected credit losses):


	Fixed Maturities
	Corporate and All Other Bonds
(in millions)	At and For the Three Months Ended June 30, 2022		At and For the Three Months Ended June 30, 2021

Balance, beginning of period	$	4	$	2
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)
Reductions due to sales/defaults of credit-impaired securities	—		—
Reductions for impairments of securities which the Company intends to sell or more likely than not will be required to sell	—		—
Balance, end of period	$	4	$	2

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

3. INVESTMENTS, Continued


	Fixed Maturities
	Corporate and All Other Bonds
(in millions)	At and For the Six Months Ended June 30, 2022		At and For the Six Months Ended June 30, 2021

Balance, beginning of period	$	3		$	2
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			(1)
Reductions due to sales/defaults of credit-impaired securities	—			—
Reductions for impairments of securities which the Company intends to sell or more likely than not will be required to sell	—			—
Balance, end of period	$	4		$	2

Total net impairment charges, including credit impairments, reported in net realized investment gains (losses) in the consolidated statement of income, were $20 million and $0 million for the three months ended June 30, 2022 and 2021, respectively, and $21 million and $0 million for the six months ended June 30, 2022 and 2021, respectively. Credit losses related to the fixed maturity portfolio for both the three months and six months ended June 30, 2022 and 2021 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.

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.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

4. FAIR VALUE MEASUREMENTS, Continued

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 June 30, 2022 and December 31, 2021.

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.

For certain investments in non-public common and preferred equity securities, the fair value estimate is determined either internally or by an external fund manager based on the impact of recent observable transactions on the investment, 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 included the fair value estimate of $338 million and $343 million for these investments at June 30, 2022 and December 31, 2021, 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 the notes to the consolidated financial statements in the Company’s 2021 Annual Report.

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 June 30, 2022, 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	$	3,588	$	3,588	$	—	$	—
Obligations of U.S. states, municipalities and political subdivisions	33,608		—		33,608		—
Debt securities issued by foreign governments	1,002		—		1,002		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	1,690		—		1,690		—
Corporate and all other bonds	31,211		—		30,986		225
Total fixed maturities	71,099		3,588		67,286		225
Equity securities
Common stock	745		426		—		319
Non-redeemable preferred stock	55		16		20		19
Total equity securities	800		442		20		338
Other investments	16		15		—		1
Total	$	71,915	$	4,045	$	67,306	$	564

Other liabilities	$	3	$	—	$	—	$	3

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

4. FAIR VALUE MEASUREMENTS, Continued


(at December 31, 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	$	3,562	$	3,562	$	—	$	—
Obligations of U.S. states, municipalities and political subdivisions	36,862		—		36,858		4
Debt securities issued by foreign governments	1,041		—		1,041		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	1,817		—		1,762		55
Corporate and all other bonds	34,528		—		34,339		189
Total fixed maturities	77,810		3,562		74,000		248
Equity securities
Common stock	827		509		—		318
Non-redeemable preferred stock	66		21		20		25
Total equity securities	893		530		20		343
Other investments	23		18		—		5
Total	$	78,726	$	4,110	$	74,020	$	596

Other liabilities	$	3	$	—	$	—	$	3

There was no significant activity in Level 3 of the hierarchy during the six months ended June 30, 2022.

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 June 30, 2022, in millions)	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets
Short-term securities	$	3,569	$	3,569	$	421	$	3,092	$	56
Financial liabilities
Debt	$	7,191	$	7,081	$	—	$	7,081	$	—
Commercial paper	100		100		—		100		—


(at December 31, 2021, in millions)	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets
Short-term securities	$	3,836	$	3,836	$	1,163	$	2,615	$	58
Financial liabilities
Debt	$	7,190	$	9,085	$	—	$	9,085	$	—
Commercial paper	100		100		—		100		—

The Company had no material assets or liabilities that were measured at fair value on a non-recurring basis during the six months ended June 30, 2022 or the year ended December 31, 2021.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

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 June 30, 2022 and 2021, and the changes in the allowance for expected credit losses for the three and six months ended June 30, 2022 and 2021.


	At and For the Three Months Ended June 30, 2022				At and For the Three Months Ended June 30, 2021
(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	$	8,593	$	89	$	8,167	$	110

Current period change for expected credit losses			17				14
Write-offs of uncollectible premiums receivable			17				19

Balance, end of period	$	9,132	$	89	$	8,555	$	105


	At and For the Six Months Ended June 30, 2022				At and For the Six Months Ended June 30, 2021
(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	$	8,085	$	107	$	7,829	$	105

Current period change for expected credit losses			35				30
Write-offs of uncollectible premiums receivable			53				30

Balance, end of period	$	9,132	$	89	$	8,555	$	105

Reinsurance Recoverables

The following tables present the balances of reinsurance recoverables, net of the allowance for estimated uncollectible reinsurance, at June 30, 2022 and 2021, and the changes in the allowance for estimated uncollectible reinsurance for the three and six months ended June 30, 2022 and 2021.

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 June 30, 2022				At and For the Three Months Ended June 30, 2021
(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	$	8,734	$	135	$	8,345	$	142


Current period change for estimated uncollectible reinsurance			(3)				(7)
Write-offs of uncollectible reinsurance recoverables			—				—
Balance, end of period	$	8,509	$	132	$	8,209	$	135


	At and For the Six Months Ended June 30, 2022				At and For the Six Months Ended June 30, 2021
(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	$	8,452	$	141	$	8,350	$	146


Current period change for estimated uncollectible reinsurance			(9)				(11)
Write-offs of uncollectible reinsurance recoverables			—				—
Balance, end of period	$	8,509	$	132	$	8,209	$	135

Of the total reinsurance recoverables at June 30, 2022, $5.95 billion, or 86%, were rated by A.M. Best Company, after deducting mandatory pools and associations and before allowances for estimated uncollectible reinsurance. 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: 6% related to captive insurance companies, 1% related to the Company’s participation in voluntary pools and 7% were balances from other 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 June 30, 2022 and 2021, and the changes in the allowance for expected credit losses for the three and six months ended June 30, 2022 and 2021.


	At and For the Three Months Ended June 30, 2022				At and For the Three Months Ended June 30, 2021
(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	$	3,901	$	19	$	4,271	$	19

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

Balance, end of period	$	3,735	$	18	$	4,016	$	19


	At and For the Six Months Ended June 30, 2022				At and For the Six Months Ended June 30, 2021
(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	$	3,890	$	21	$	4,242	$	19

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

Balance, end of period	$	3,735	$	18	$	4,016	$	19

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

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)	June 30, 2022		December 31, 2021
Business Insurance	$	2,571	$	2,610
Bond & Specialty Insurance	550		550
Personal Insurance	820		822
Other	26		26
Total	$	3,967	$	4,008

Other Intangible Assets

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


(at June 30, 2022, in millions)	Gross Carrying Amount		Accumulated Amortization		Net
Subject to amortization
Customer-related	$	96	$	43	$	53
Contract-based (1)	205		190		15
Total subject to amortization	301		233		68
Not subject to amortization	226		—		226
Total	$	527	$	233	$	294


(at December 31, 2021, in millions)	Gross Carrying Amount		Accumulated Amortization		Net
Subject to amortization
Customer-related	$	104	$	41	$	63
Contract-based (1)	205		188		17
Total subject to amortization	309		229		80
Not subject to amortization	226		—		226
Total	$	535	$	229	$	306

(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.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

7. INSURANCE CLAIM RESERVES

Claims and claim adjustment expense reserves were as follows:


(in millions)	June 30, 2022		December 31, 2021
Property-casualty	$	57,976	$	56,897
Accident and health	7		10
Total	$	57,983	$	56,907

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


	Six Months Ended June 30,
(in millions)	2022		2021
Claims and claim adjustment expense reserves at beginning of year	$	56,897	$	54,510
Less reinsurance recoverables on unpaid losses	8,209		8,153

Net reserves at beginning of year	48,688		46,357

Estimated claims and claim adjustment expenses for claims arising in the current year	11,194		10,430
Estimated decrease in claims and claim adjustment expenses for claims arising in prior years	(387)		(459)
Total increases	10,807		9,971

Claims and claim adjustment expense payments for claims arising in:
Current year	3,357		3,113
Prior years	6,205		5,274
Total payments	9,562		8,387
Unrealized foreign exchange (gain) loss	(164)		53
Net reserves at end of period	49,769		47,994
Plus reinsurance recoverables on unpaid losses	8,207		7,901
Claims and claim adjustment expense reserves at end of period	$	57,976	$	55,895

Gross claims and claim adjustment expense reserves at June 30, 2022 increased by $1.08 billion from December 31, 2021, primarily reflecting the impacts of (i) higher volumes of insured exposures, (ii) loss cost trends for the current accident year and (iii) catastrophe losses in the first six months of 2022, partially offset by (iv) net favorable prior year reserve development.

Reinsurance recoverables on unpaid losses at June 30, 2022 decreased by $2 million from December 31, 2021.

Prior Year Reserve Development

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

For the six months ended June 30, 2022 and 2021, estimated claims and claim adjustment expenses incurred included $387 million and $459 million, respectively, of net favorable development for claims arising in prior years, including $444 million and $499 million, respectively, of net favorable prior year reserve development, and $23 million and $24 million, respectively, of accretion of discount 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 favorable prior year reserve development in the second quarter of 2022 totaled $202 million, primarily driven by better than expected loss experience in the domestic operations' workers' compensation product line for multiple accident years and in the commercial multi-peril product line for recent accident years, partially offset by an increase in reserves in the domestic operations' general liability product line including for run-off operations. Net favorable prior year reserve development in the second quarter of 2021 totaled $73 million, primarily driven by better than expected loss experience in the domestic operations' workers' compensation product line for multiple accident years, partially offset by an increase in reserves related to run-off operations.

Net favorable prior year reserve development in the first six months of 2022 totaled $315 million, primarily driven by better than expected loss experience in the domestic operations' workers' compensation product line for multiple accident years and in the commercial multi-peril product line for recent accident years, partially offset by an increase in reserves in the domestic operations' general liability product line including for run-off operations. Net favorable prior year reserve development in the first six months of 2021 totaled $207 million, primarily driven by better than expected loss experience in the domestic operations' workers' compensation product line for multiple accident years and in the commercial property and commercial automobile product lines for recent accident years, partially offset by an increase in reserves related to run-off operations. The first six months of 2022 and 2021 also included an increase to environmental reserves.

Bond & Specialty Insurance. Net favorable prior year reserve development in the second quarter and first six months of 2022 totaled $73 million and $108 million, respectively, primarily driven by better than expected loss experience in the domestic operations' fidelity and surety product lines for recent accident years. Net favorable prior year reserve development in the second quarter and first six months of 2021 totaled $44 million and $59 million, respectively, primarily driven by better than expected loss experience in the domestic operations' fidelity and surety product lines for recent accident years.

Personal Insurance. Net favorable prior year reserve development in the second quarter and first six months of 2022 totaled $16 million and $21 million, respectively. Net favorable prior year reserve development in the second quarter and first six months of 2021 totaled $65 million and $233 million, respectively, primarily driven by better than expected loss experience in the domestic operations in both the automobile and homeowners and other product lines for recent accident years.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

8. OTHER COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following tables present the changes in the Company’s accumulated other comprehensive income (loss) (AOCI) for the three months and six months ended June 30, 2022.


	Changes in Net Unrealized Gains (Losses) 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 (Loss)

Balance, March 31, 2022	$	(1,572)	$	181	$	(464)	$	(747)	$	(2,602)

Other comprehensive income (loss) (OCI) before reclassifications, net of tax	(2,415)		(2)		1		(161)		(2,577)
Amounts reclassified from AOCI, net of tax	16		—		8		—		24
Net OCI, current period	(2,399)		(2)		9		(161)		(2,553)
Balance, June 30, 2022	$	(3,971)	$	179	$	(455)	$	(908)	$	(5,155)


	Changes in Net Unrealized Gains (Losses) 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 (Loss)

Balance, December 31, 2021	$	2,233	$	182	$	(473)	$	(749)	$	1,193

Other comprehensive income (loss) (OCI) before reclassifications, net of tax	(6,219)		(3)		2		(159)		(6,379)
Amounts reclassified from AOCI, net of tax	15		—		16		—		31
Net OCI, current period	(6,204)		(3)		18		(159)		(6,348)
Balance, June 30, 2022	$	(3,971)	$	179	$	(455)	$	(908)	$	(5,155)

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

8. OTHER COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), 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 June 30,				Six Months Ended June 30,
(in millions)	2022		2021		2022		2021

Changes in net unrealized gains (losses) on investment securities:
Having no credit losses recognized in the consolidated statement of income	$	(3,045)	$	533	$	(7,874)	$	(1,063)
Income tax expense (benefit)	(646)		111		(1,670)		(228)
Net of taxes	(2,399)		422		(6,204)		(835)

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

Net changes in benefit plan assets and obligations	11		26		22		51
Income tax expense	2		6		4		11
Net of taxes	9		20		18		40

Net changes in unrealized foreign currency translation	(174)		40		(172)		66
Income tax expense (benefit)	(13)		4		(13)		4
Net of taxes	(161)		36		(159)		62

Total other comprehensive income (loss)	(3,210)		599		(8,027)		(946)
Total income tax expense (benefit)	(657)		121		(1,679)		(213)
Total other comprehensive income (loss), net of taxes	$	(2,553)	$	478	$	(6,348)	$	(733)

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

8. OTHER COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), 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 June 30,				Six Months Ended June 30,
(in millions)	2022		2021		2022		2021

Reclassification adjustments related to unrealized gains (losses) on investment securities:
Having no credit losses recognized in the consolidated statement of income (1)	$	21	$	(24)	$	19	$	(38)
Income tax (expense) benefit (2)	5		(5)		4		(8)
Net of taxes	16		(19)		15		(30)

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)	4		11		8		21
General and administrative expenses (3)	7		15		13		30
Total	11		26		21		51
Income tax benefit (2)	3		6		5		11
Net of taxes	8		20		16		40

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

Total reclassifications	32		2		40		13
Total income tax benefit	8		1		9		3
Total reclassifications, net of taxes	$	24	$	1	$	31	$	10

(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

Credit Agreement. On June 15, 2022, the Company entered into a five-year $1.0 billion revolving credit agreement with a syndicate of financial institutions, replacing its five-year $1.0 billion credit agreement that was due to expire on June 4, 2023. Pursuant to the credit agreement covenants, the Company must maintain a minimum consolidated net worth, defined as shareholders’ equity determined in accordance with GAAP (excluding accumulated other comprehensive income (loss)) plus (a) trust preferred securities (not to exceed 15% of total capital) and (b) mandatorily convertible securities (combined with trust preferred securities, not to exceed 25% of total capital), less goodwill and other intangible assets. That threshold is fixed during the term of the credit agreement at an amount equal to $13.9 billion (57.5% of the Company's net worth as defined above at March 31, 2022). In addition, the credit agreement contains other customary restrictive covenants as well as certain customary events of default, including with respect to a change in control, which would occur upon the acquisition of 35% or more of the Company’s voting stock or certain changes in the composition of the Company’s board of directors. At June 30, 2022, the

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

9. DEBT, Continued

Company was in compliance with these covenants. Generally, the cost of borrowing under this agreement will range from the Secured Overnight Financing Rate (SOFR) plus 85 basis points (including a credit spread adjustment) to SOFR plus 147.5 basis points (including a credit spread adjustment), depending on the Company’s credit ratings. At June 30, 2022, that cost would have been SOFR plus 110 basis points (including a credit spread adjustment), had there been any amounts outstanding under the credit agreement.

10. COMMON SHARE REPURCHASES

During the three and six months ended June 30, 2022, the Company repurchased 2.9 million and 5.8 million common shares, respectively, under its share repurchase authorizations for total cost of $500 million and $1.00 billion, respectively. The average cost per share repurchased was $172.56 and $172.33, respectively. In addition, the Company acquired 2,394 shares and 0.4 million common shares for a total cost of approximately $414,000 and $59 million during the three and six months ended June 30, 2022, 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. At June 30, 2022, the Company had $3.01 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 June 30,				Six Months Ended June 30,
(in millions, except per share amounts)	2022		2021		2022		2021

Basic and Diluted
Net income, as reported	$	551	$	934	$	1,569	$	1,667
Participating share-based awards — allocated income	(4)		(7)		(11)		(12)
Net income available to common shareholders — basic and diluted	$	547	$	927	$	1,558	$	1,655

Common Shares
Basic
Weighted average shares outstanding	238.4		250.7		239.7		251.4

Diluted
Weighted average shares outstanding	238.4		250.7		239.7		251.4
Weighted average effects of dilutive securities — stock options and performance shares	2.7		2.4		2.7		2.2
Total	241.1		253.1		242.4		253.6

Net Income per Common Share
Basic	$	2.29	$	3.70	$	6.50	$	6.58
Diluted	$	2.27	$	3.66	$	6.43	$	6.53

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 June 30, 2022:


Stock Options	Number	Weighted Average Exercise Price		Weighted Average Contractual Life Remaining	Aggregate Intrinsic Value ($ in millions)
Vested at end of period (1)	7,211,916	$	130.88	6.3 years	$	278
Exercisable at end of period	4,433,140	$	122.89	5.0 years	$	205

(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 $41 million and $36 million for the three months ended June 30, 2022 and 2021, respectively, and $100 million and $89 million for the six months ended June 30, 2022 and 2021, respectively. The related tax benefits recognized in earnings were $7 million and $6 million for the three months ended June 30, 2022 and 2021, respectively, and $17 million and $15 million for the six months ended June 30, 2022 and 2021, respectively.

The total unrecognized compensation cost related to all nonvested share-based incentive compensation awards at June 30, 2022 was $245 million, which is expected to be recognized over a weighted-average period of 2.0 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 June 30, 2022 and 2021.


	Pension Plans				Postretirement Benefit Plans
(for the three months ended June 30, in millions)	2022		2021		2022		2021

Net Periodic Benefit Cost (Benefit):
Service cost	$	37	$	36	$	—	$	—

Non-service cost (benefit):
Interest cost on benefit obligation	$	26	$	20	$	1	$	—
Expected return on plan assets	(74)		(68)		—		—

Amortization of unrecognized:
Prior service benefit	—		—		(1)		(1)
Net actuarial (gain) loss	13		27		(1)		—
Total non-service cost (benefit)	(35)		(21)		(1)		(1)
Net periodic benefit cost (benefit)	$	2	$	15	$	(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 June 30, 2022 and 2021.


	Pension Plans				Postretirement Benefit Plans
(for the three months ended June 30, in millions)	2022		2021		2022		2021
Service Cost:
Claims and claim adjustment expenses	$	15	$	15	$	—	$	—
General and administrative expenses	22		21		—		—
Total service cost	37		36		—		—

Non-Service Cost (Benefit):
Claims and claim adjustment expenses	(14)		(8)		(1)		(1)
General and administrative expenses	(21)		(13)		—		—
Total non-service cost (benefit)	(35)		(21)		(1)		(1)
Net periodic benefit cost (benefit)	$	2	$	15	$	(1)	$	(1)


	Pension Plans				Postretirement Benefit Plans
(for the six months ended June 30, in millions)	2022		2021		2022		2021
Net Periodic Benefit Cost (Benefit):
Service cost	$	73	$	71	$	—	$	—
Non-service cost (benefit):
Interest cost on benefit obligation	51		41		2		1
Expected return on plan assets	(148)		(137)		—		—

Amortization of unrecognized:
Prior service benefit	—		—		(2)		(2)
Net actuarial (gain) loss	25		54		(2)		(1)
Total non-service cost (benefit)	(72)		(42)		(2)		(2)
Net periodic benefit cost (benefit)	$	1	$	29	$	(2)	$	(2)

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 six months ended June 30, 2022 and 2021.


	Pension Plans				Postretirement Benefit Plans
(for the six months ended June 30, in millions)	2022		2021		2022		2021
Service Cost:
Claims and claim adjustment expenses	$	30	$	29	$	—	$	—
General and administrative expenses	43		42		—		—
Total service cost	73		71		—		—
Non-Service Cost (Benefit):
Claims and claim adjustment expenses	(29)		(17)		(1)		(1)
General and administrative expenses	(43)		(25)		(1)		(1)
Total non-service cost (benefit)	(72)		(42)		(2)		(2)
Net periodic benefit cost (benefit)	$	1	$	29	$	(2)	$	(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 June 30,						Six Months Ended June 30,
(in millions)	2022			2021				2022			2021

Lease cost
Operating leases	$	21		$	22			$	42		$	45
Short-term leases (1)	1			1				1			1

Lease expense	22			23				43			46
Less: sublease income (2)	—			—				—			—
Net lease cost	$	22		$	23			$	43		$	46

Other information on operating leases

Cash payments to settle a lease liability reported in cash flows	$	24		$	27			$	48		$	53
Right-of-use assets obtained in exchange for new lease liabilities	$	5		$	7			$	7		$	19
Weighted average discount rate	2.27		%	2.41		%		2.27		%	2.41		%
Weighted average remaining lease term	4.6 years			4.8 years				4.6 years			4.8 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 $1.83 billion and $1.70 billion at June 30, 2022 and December 31, 2021, 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 June 30, 2022.

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 June 30, 2022, all of which is indemnified by a third party. For more information regarding Company guarantees, see note 17 of the notes to the consolidated financial statements in the Company’s 2021 Annual Report.

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

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