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,
	2022		2021		2022		2021

Revenues
Premiums	$	8,615	$	7,829	$	24,946	$	22,831
Net investment income	593		771		1,937		2,290
Fee income	104		97		307		302
Net realized investment gains (losses)	(93)		8		(211)		113
Other revenues	84		100		269		269

Total revenues	9,303		8,805		27,248		25,805

Claims and expenses
Claims and claim adjustment expenses	6,088		5,464		16,930		15,479
Amortization of deferred acquisition costs	1,406		1,281		4,081		3,742
General and administrative expenses	1,193		1,187		3,607		3,524
Interest expense	88		87		263		252
Total claims and expenses	8,775		8,019		24,881		22,997

Income before income taxes	528		786		2,367		2,808
Income tax expense	74		124		344		479
Net income	$	454	$	662	$	2,023	$	2,329

Net income per share
Basic	$	1.91	$	2.65	$	8.43	$	9.24
Diluted	$	1.89	$	2.62	$	8.34	$	9.16

Weighted average number of common shares outstanding
Basic	235.4		247.7		238.3		250.1
Diluted	237.9		250.1		240.9		252.4

Cash dividends declared per common share	$	0.93	$	0.88	$	2.74	$	2.61

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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

Net income	$	454	$	662	$	2,023	$	2,329

Other comprehensive income (loss)
Changes in net unrealized gains (losses) on investment securities:
Having no credit losses recognized in the consolidated statement of income	(3,204)		(686)		(11,078)		(1,749)
Having credit losses recognized in the consolidated statement of income	—		—		(3)		—
Net changes in benefit plan assets and obligations	12		26		34		77
Net changes in unrealized foreign currency translation	(251)		(91)		(423)		(25)
Other comprehensive loss before income taxes	(3,443)		(751)		(11,470)		(1,697)
Income tax benefit	(690)		(148)		(2,369)		(361)
Other comprehensive loss, net of taxes	(2,753)		(603)		(9,101)		(1,336)
Comprehensive income (loss)	$	(2,299)	$	59	$	(7,078)	$	993

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, 2022		December 31, 2021
	(Unaudited)
Assets
Fixed maturities, available for sale, at fair value (amortized cost $76,471 and $74,751; allowance for expected credit losses of $3 and $3)	$	68,450	$	77,810
Equity securities, at fair value (cost $757 and $749)	774		893
Real estate investments	954		979
Short-term securities	3,927		3,836
Other investments	4,008		3,857
Total investments	78,113		87,375
Cash	773		761
Investment income accrued	583		615
Premiums receivable (net of allowance for expected credit losses of $86 and $107)	8,886		8,085
Reinsurance recoverables (net of allowance for estimated uncollectible reinsurance of $133 and $141)	8,202		8,452
Ceded unearned premiums	1,199		902
Deferred acquisition costs	2,858		2,542
Deferred taxes	2,175		—
Contractholder receivables (net of allowance for expected credit losses of $18 and $21)	3,749		3,890
Goodwill	3,922		4,008
Other intangible assets	287		306
Other assets	3,570		3,530
Total assets	$	114,317	$	120,466

Liabilities
Claims and claim adjustment expense reserves	$	58,138	$	56,907
Unearned premium reserves	18,364		16,469
Contractholder payables	3,767		3,911
Payables for reinsurance premiums	629		384
Deferred taxes	—		289
Debt	7,291		7,290
Other liabilities	6,222		6,329
Total liabilities	94,411		91,579

Shareholders’ equity
Common stock (1,750.0 shares authorized; 234.3 and 241.2 shares issued and outstanding)	24,472		24,154
Retained earnings	42,917		41,555
Accumulated other comprehensive income (loss)	(7,908)		1,193
Treasury stock, at cost (550.8 and 541.5 shares)	(39,575)		(38,015)
Total shareholders’ equity	19,906		28,887
Total liabilities and shareholders’ equity	$	114,317	$	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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

Common stock
Balance, beginning of period	$	24,419	$	24,002	$	24,154	$	23,743
Employee share-based compensation	11		45		176		214
Compensation amortization under share-based plans and other changes	42		37		142		127
Balance, end of period	24,472		24,084		24,472		24,084

Retained earnings
Balance, beginning of period	42,684		39,998		41,555		38,771


Net income	454		662		2,023		2,329
Dividends	(221)		(220)		(660)		(660)
Other	—		(2)		(1)		(2)
Balance, end of period	42,917		40,438		42,917		40,438

Accumulated other comprehensive income (loss), net of tax
Balance, beginning of period	(5,155)		1,769		1,193		2,502


Other comprehensive loss	(2,753)		(603)		(9,101)		(1,336)
Balance, end of period	(7,908)		1,166		(7,908)		1,166

Treasury stock, at cost
Balance, beginning of period	(39,074)		(36,613)		(38,015)		(35,815)
Treasury stock acquired — share repurchase authorizations	(500)		(600)		(1,500)		(1,356)
Net shares acquired related to employee share-based compensation plans	(1)		(1)		(60)		(43)
Balance, end of period	(39,575)		(37,214)		(39,575)		(37,214)

Total shareholders’ equity	$	19,906	$	28,474	$	19,906	$	28,474

Common shares outstanding
Balance, beginning of period	237.3		249.5		241.2		252.4
Treasury stock acquired — share repurchase authorizations	(3.1)		(3.8)		(8.9)		(8.8)
Net shares issued under employee share-based compensation plans	0.1		0.3		2.0		2.4
Balance, end of period	234.3		246.0		234.3		246.0

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,
	2022		2021
Cash flows from operating activities
Net income	$	2,023	$	2,329
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment (gains) losses	211		(113)
Depreciation and amortization	639		662
Deferred federal income tax expense (benefit)	(130)		61
Amortization of deferred acquisition costs	4,081		3,742
Equity in income from other investments	(319)		(774)
Premiums receivable	(861)		(462)
Reinsurance recoverables	185		20
Deferred acquisition costs	(4,419)		(3,955)
Claims and claim adjustment expense reserves	1,694		2,299
Unearned premium reserves	2,033		1,460
Other	(12)		313
Net cash provided by operating activities	5,125		5,582
Cash flows from investing activities
Proceeds from maturities of fixed maturities	5,481		6,523
Proceeds from sales of investments:
Fixed maturities	3,951		2,864
Equity securities	104		74
Real estate investments	10		7
Other investments	242		275
Purchases of investments:
Fixed maturities	(12,100)		(14,356)
Equity securities	(112)		(375)
Real estate investments	(28)		(22)
Other investments	(414)		(336)
Net sales (purchases) of short-term securities	(107)		754
Securities transactions in the course of settlement	214		407
Acquisitions, net of cash acquired	(4)		(38)
Other	(291)		(199)
Net cash used in investing activities	(3,054)		(4,422)

Cash flows from financing activities
Treasury stock acquired — share repurchase authorizations	(1,500)		(1,356)
Treasury stock acquired — net employee share-based compensation	(60)		(43)
Dividends paid to shareholders	(656)		(655)

Issuance of debt	—		739
Issuance of common stock — employee share options	205		256
Net cash used in financing activities	(2,011)		(1,059)
Effect of exchange rate changes on cash	(48)		(4)
Net increase in cash	12		97
Cash at beginning of year	761		721
Cash at end of period	$	773	$	818

Supplemental disclosure of cash flow information
Income taxes paid	$	663	$	543
Interest paid	$	234	$	222

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.

Enactment of the Inflation Reduction Act of 2022

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act (IRA) which, among other changes, created a new corporate alternative minimum tax (AMT) based on adjusted financial statement income and imposes a 1% excise tax on corporate stock repurchases. The effective date of these provisions is January 1, 2023. The Company does not expect the enactment of the IRA will have an impact on the Company’s financial statements in 2022. While the Company expects to be an applicable corporation subject to the AMT tax beginning in 2023 based on its reported GAAP earnings for the past three years, the Company expects any AMT tax incurred to be treated as a taxable temporary difference and have no direct impact on total income tax expense, subject to any additional guidance or regulations that may be issued. Any excise tax incurred on corporate stock repurchases will generally be recognized as part of the cost basis of the treasury stock acquired and not reported as part of income tax expense.

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 September 30, in millions)	Business Insurance		Bond & Specialty Insurance		Personal Insurance		Total Reportable Segments

2022
Premiums	$	4,353	$	877	$	3,385	$	8,615
Net investment income	426		65		102		593
Fee income	96		—		8		104
Other revenues	56		6		22		84
Total segment revenues (1)	$	4,931	$	948	$	3,517	$	9,396
Segment income (loss) (1)	$	471	$	242	$	(111)	$	602

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

(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 nine months ended September 30, in millions)	Business Insurance		Bond & Specialty Insurance		Personal Insurance		Total Reportable Segments
2022
Premiums	$	12,642	$	2,548	$	9,756	$	24,946
Net investment income	1,415		188		334		1,937
Fee income	285		—		22		307
Other revenues	194		14		61		269
Total segment revenues (1)	$	14,536	$	2,750	$	10,173	$	27,459
Segment income (loss) (1)	$	1,806	$	687	$	(79)	$	2,414

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

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)	2022		2021		2022		2021
Revenue reconciliation
Earned premiums
Business Insurance:
Domestic:
Workers’ compensation	$	872	$	789	$	2,566	$	2,410
Commercial automobile	754		718		2,202		2,122
Commercial property	668		582		1,914		1,669
General liability	728		662		2,116		1,887
Commercial multi-peril	1,057		939		3,034		2,708
Other	19		17		52		45
Total Domestic	4,098		3,707		11,884		10,841
International	255		263		758		808
Total Business Insurance	4,353		3,970		12,642		11,649
Bond & Specialty Insurance:
Domestic:
Fidelity and surety	307		277		876		819
General liability	396		365		1,154		1,043
Other	57		54		166		165
Total Domestic	760		696		2,196		2,027
International	117		110		352		298
Total Bond & Specialty Insurance	877		806		2,548		2,325
Personal Insurance:
Domestic:
Automobile	1,575		1,445		4,544		4,220
Homeowners and Other	1,648		1,437		4,714		4,122
Total Domestic	3,223		2,882		9,258		8,342
International	162		171		498		515
Total Personal Insurance	3,385		3,053		9,756		8,857
Total earned premiums	8,615		7,829		24,946		22,831
Net investment income	593		771		1,937		2,290
Fee income	104		97		307		302
Other revenues	84		100		269		269
Total segment revenues	9,396		8,797		27,459		25,692

Net realized investment gains (losses)	(93)		8		(211)		113
Total revenues	$	9,303	$	8,805	$	27,248	$	25,805
Income reconciliation, net of tax
Total segment income	$	602	$	730	$	2,414	$	2,449
Interest Expense and Other (1)	(76)		(75)		(226)		(216)
Core income	526		655		2,188		2,233
Net realized investment gains (losses)	(72)		7		(165)		88
Impact of changes in tax laws and/or tax rates (2)	—		—		—		8
Net income	$	454	$	662	$	2,023	$	2,329

(1)The primary component of Interest Expense and Other was after-tax interest expense of $70 million and $69 million for the three months ended September 30, 2022 and 2021, respectively, and $208 million and $199 million for the nine months ended September 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)	September 30, 2022		December 31, 2021
Asset reconciliation
Business Insurance	$	85,149	$	90,353
Bond & Specialty Insurance	10,128		10,146
Personal Insurance	18,069		18,983
Total assets by reportable segment	113,346		119,482
Other assets (1)	971		984
Total consolidated assets	$	114,317	$	120,466

(1)The primary components of other assets at both September 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 September 30, 2022, in millions)			Gains		Losses
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	4,453	$	—	$	—	$	419	$	4,034
Obligations of U.S. states, municipalities and political subdivisions:
Local general obligation	19,851		—		5		2,644		17,212
Revenue	11,066		—		7		1,265		9,808
State general obligation	1,131		—		1		128		1,004
Pre-refunded	3,100		—		10		6		3,104
Total obligations of U.S. states, municipalities and political subdivisions	35,148		—		23		4,043		31,128
Debt securities issued by foreign governments	995		—		1		55		941
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	2,020		—		10		210		1,820
Corporate and all other bonds	33,855		3		22		3,347		30,527
Total	$	76,471	$	3	$	56	$	8,074	$	68,450

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 $3.10 billion and $4.03 billion at September 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 $3.95 billion and $2.86 billion during the nine months ended September 30, 2022 and 2021, respectively. Gross gains of $17 million and $56 million and gross losses of $52 million and $5 million were realized on those sales during the nine months ended September 30, 2022 and 2021, respectively.

Equity Securities

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


							Fair
(at September 30, 2022, in millions)	Cost		Gross Gains		Gross Losses		Value
Common stock	$	704	$	55	$	43	$	716
Non-redeemable preferred stock	53		6		1		58
Total	$	757	$	61	$	44	$	774


							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 nine months ended September 30, 2022 and 2021, the Company recognized $(110) million and $45 million of net gains (losses) on equity securities still held as of September 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 September 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 September 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	$	2,641	$	179	$	1,389	$	240	$	4,030	$	419
Obligations of U.S. states, municipalities and political subdivisions	25,138		3,245		2,526		798		27,664		4,043
Debt securities issued by foreign governments	614		24		305		31		919		55
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	1,532		171		168		39		1,700		210
Corporate and all other bonds	25,737		2,240		4,437		1,107		30,174		3,347
Total	$	55,662	$	5,859	$	8,825	$	2,215	$	64,487	$	8,074


	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 September 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 September 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	1,523		514		239		—		2,276
Debt securities issued by foreign governments	—		—		—		—		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	69		—		—		—		69
Corporate and all other bonds	1,273		10		—		—		1,283
Total	$	2,865	$	524	$	239	$	—	$	3,628

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. Recent increases in interest rates resulted in the gross unrealized investment losses above; however, since the Company generally holds its high-quality fixed maturity investments to maturity, the net unrealized loss is generally considered temporary in nature and is not expected to result in significant realized losses.

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
	At and For the Three Months Ended
(in millions)	September 30, 2022		September 30, 2021

Balance, beginning of period	$	4	$	2
Additions for expected credit losses on securities where no credit losses were previously recognized	—		—
Additions (reductions) for expected credit losses on securities where credit losses were previously recognized	—		1
Reductions due to sales/defaults of credit-impaired securities	(1)		(1)
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	$	3	$	2

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

3. INVESTMENTS, Continued


	Fixed Maturities
	Corporate and All Other Bonds
	At and For the Nine Months Ended
(in millions)	September 30, 2022		September 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			—
Reductions due to sales/defaults of credit-impaired securities	(1)			(1)
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	$	3		$	2

Total net impairment charges, including credit impairments, reported in net realized investment gains (losses) in the consolidated statement of income, were $14 million and $1 million for the three months ended September 30, 2022 and 2021, respectively, and $35 million and $1 million for the nine months ended September 30, 2022 and 2021, respectively. Credit losses related to the fixed maturity portfolio for both the three months and nine months ended September 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 September 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 $346 million and $343 million for these investments at September 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 September 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	$	4,034	$	4,034	$	—	$	—
Obligations of U.S. states, municipalities and political subdivisions	31,128		—		31,128		—
Debt securities issued by foreign governments	941		—		941		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	1,820		—		1,820		—
Corporate and all other bonds	30,527		3		30,278		246
Total fixed maturities	68,450		4,037		64,167		246
Equity securities
Common stock	716		394		—		322
Non-redeemable preferred stock	58		15		19		24
Total equity securities	774		409		19		346
Other investments	15		14		—		1
Total	$	69,239	$	4,460	$	64,186	$	593

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 nine months ended September 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 September 30, 2022, in millions)	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets
Short-term securities	$	3,927	$	3,927	$	617	$	3,268	$	42
Financial liabilities
Debt	$	7,191	$	6,457	$	—	$	6,457	$	—
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 nine months ended September 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 September 30, 2022 and 2021, and the changes in the allowance for expected credit losses for the three and nine months ended September 30, 2022 and 2021.


	At and For the Three Months Ended September 30, 2022				At and For the Three Months Ended September 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	$	9,132	$	89	$	8,555	$	105

Current period change for expected credit losses			14				15
Write-offs of uncollectible premiums receivable			17				18

Balance, end of period	$	8,886	$	86	$	8,289	$	102


	At and For the Nine Months Ended September 30, 2022				At and For the Nine Months Ended September 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			49				45
Write-offs of uncollectible premiums receivable			70				48

Balance, end of period	$	8,886	$	86	$	8,289	$	102

Reinsurance Recoverables

The following tables present the balances of reinsurance recoverables, net of the allowance for estimated uncollectible reinsurance, at September 30, 2022 and 2021, and the changes in the allowance for estimated uncollectible reinsurance for the three and nine months ended September 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 September 30, 2022				At and For the Three Months Ended September 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	$	8,509	$	132	$	8,209	$	135


Current period change for estimated uncollectible reinsurance			1				7
Write-offs of uncollectible reinsurance recoverables			—				—
Balance, end of period	$	8,202	$	133	$	8,329	$	142


	At and For the Nine Months Ended September 30, 2022				At and For the Nine Months Ended September 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			(8)				(4)
Write-offs of uncollectible reinsurance recoverables			—				—
Balance, end of period	$	8,202	$	133	$	8,329	$	142

Of the total reinsurance recoverables at September 30, 2022, $5.84 billion, or 87%, 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 13% 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 6% 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 September 30, 2022 and 2021, and the changes in the allowance for expected credit losses for the three and nine months ended September 30, 2022 and 2021.


	At and For the Three Months Ended September 30, 2022				At and For the Three Months Ended September 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	$	3,735	$	18	$	4,016	$	19

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

Balance, end of period	$	3,749	$	18	$	4,024	$	19


	At and For the Nine Months Ended September 30, 2022				At and For the Nine Months Ended September 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	$	3,749	$	18	$	4,024	$	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)	September 30, 2022		December 31, 2021
Business Insurance	$	2,538	$	2,610
Bond & Specialty Insurance	550		550
Personal Insurance	808		822
Other	26		26
Total	$	3,922	$	4,008

Other Intangible Assets

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


(at September 30, 2022, in millions)	Gross Carrying Amount		Accumulated Amortization		Net
Subject to amortization
Customer-related	$	91	$	43	$	48
Contract-based (1)	204		190		14
Total subject to amortization	295		233		62
Not subject to amortization	225		—		225
Total	$	520	$	233	$	287


(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)	September 30, 2022		December 31, 2021
Property-casualty	$	58,131	$	56,897
Accident and health	7		10
Total	$	58,138	$	56,907

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)	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	17,257		15,813
Estimated decrease in claims and claim adjustment expenses for claims arising in prior years	(383)		(398)
Total increases	16,874		15,415

Claims and claim adjustment expense payments for claims arising in:
Current year	6,302		5,653
Prior years	8,638		7,339
Total payments	14,940		12,992
Unrealized foreign exchange gain	(391)		(18)
Net reserves at end of period	50,231		48,762
Plus reinsurance recoverables on unpaid losses	7,900		8,033
Claims and claim adjustment expense reserves at end of period	$	58,131	$	56,795

Gross claims and claim adjustment expense reserves at September 30, 2022 increased by $1.23 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 nine months of 2022, partially offset by (iv) net favorable prior year reserve development.

Reinsurance recoverables on unpaid losses at September 30, 2022 decreased by $309 million from December 31, 2021, primarily reflecting decreases in mandatory pools and associations and structured settlements in the first nine months of 2022.

Prior Year Reserve Development

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

For the nine months ended September 30, 2022 and 2021, estimated claims and claim adjustment expenses incurred included $383 million and $398 million, respectively, of net favorable development for claims arising in prior years, including $464 million and $443 million, respectively, of net favorable prior year reserve development, and $35 million and $36 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 unfavorable prior year reserve development in the third quarter of 2022 totaled $61 million, primarily driven by an addition to asbestos reserves of $212 million, partially offset by better than expected loss experience in the domestic operations' workers' compensation product line for multiple accident years and in the commercial property product line for recent accident years. Net unfavorable prior year reserve development in the third quarter of 2021 totaled $108 million, primarily driven by an addition to asbestos reserves of $225 million, partially offset by better than expected loss experience in the domestic operations' workers' compensation product line for multiple accident years.

Net favorable prior year reserve development in the first nine months of 2022 totaled $254 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 and commercial property product lines for recent accident years, partially offset by an addition to asbestos reserves of $212 million, an addition to reserves in the domestic operations' general liability product line (excluding asbestos and environmental) including for run-off operations and an addition to environmental reserves. 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 the domestic operations' 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 addition to asbestos reserves of $225 million, an addition to other reserves related to run-off operations and an addition to environmental reserves.

Bond & Specialty Insurance. Net favorable prior year reserve development in the third quarter of 2022 totaled $63 million, primarily driven by better than expected loss experience in the domestic operations' fidelity and surety product lines and in the general liability product line for management liability coverages for recent accident years. 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 domestic operations' fidelity and surety product lines for recent accident years.

Net favorable prior year reserve development in the first nine months of 2022 totaled $171 million, 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 first nine months of 2021 totaled $81 million, primarily driven by better than expected loss experience in the domestic operations' 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.

Personal Insurance. Net favorable prior year reserve development in the third quarter of 2022 totaled $18 million. Net favorable prior year reserve development in the third quarter of 2021 totaled $30 million, primarily driven by better than expected loss experience in domestic operations in the homeowners and other product line for recent accident years.

Net favorable prior year reserve development in the first nine months of 2022 totaled $39 million. 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 domestic operations in both the homeowners and other and automobile 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 nine months ended September 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, June 30, 2022	$	(3,971)	$	179	$	(455)	$	(908)	$	(5,155)

Other comprehensive income (loss) (OCI) before reclassifications, net of tax	(2,559)		1		—		(237)		(2,795)
Amounts reclassified from AOCI, net of tax	33		—		9		—		42
Net OCI, current period	(2,526)		1		9		(237)		(2,753)
Balance, September 30, 2022	$	(6,497)	$	180	$	(446)	$	(1,145)	$	(7,908)


	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	(8,778)		(2)		2		(396)		(9,174)
Amounts reclassified from AOCI, net of tax	48		—		25		—		73
Net OCI, current period	(8,730)		(2)		27		(396)		(9,101)
Balance, September 30, 2022	$	(6,497)	$	180	$	(446)	$	(1,145)	$	(7,908)

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 September 30,				Nine Months Ended September 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	$	(3,204)	$	(686)	$	(11,078)	$	(1,749)
Income tax benefit	(678)		(146)		(2,348)		(374)
Net of taxes	(2,526)		(540)		(8,730)		(1,375)

Having credit losses recognized in the consolidated statement of income	—		—		(3)		—
Income tax benefit	(1)		—		(1)		—
Net of taxes	1		—		(2)		—

Net changes in benefit plan assets and obligations	12		26		34		77
Income tax expense	3		5		7		16
Net of taxes	9		21		27		61

Net changes in unrealized foreign currency translation	(251)		(91)		(423)		(25)
Income tax benefit	(14)		(7)		(27)		(3)
Net of taxes	(237)		(84)		(396)		(22)

Total other comprehensive loss	(3,443)		(751)		(11,470)		(1,697)
Total income tax benefit	(690)		(148)		(2,369)		(361)
Total other comprehensive loss, net of taxes	$	(2,753)	$	(603)	$	(9,101)	$	(1,336)

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 September 30,				Nine Months Ended September 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)	$	42	$	(12)	$	61	$	(50)
Income tax (expense) benefit (2)	9		(2)		13		(10)
Net of taxes	33		(10)		48		(40)

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)	5		10		13		31
General and administrative expenses (3)	5		16		18		46
Total	10		26		31		77
Income tax benefit (2)	1		5		6		16
Net of taxes	9		21		25		61

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

Total reclassifications	52		14		92		27
Total income tax benefit	10		3		19		6
Total reclassifications, net of taxes	$	42	$	11	$	73	$	21

(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 September 30, 2022,

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

9. DEBT, Continued

the 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 September 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 nine months ended September 30, 2022, the Company repurchased 3.1 million and 8.9 million common shares, respectively, under its share repurchase authorizations for total cost of $500 million and $1.50 billion, respectively. The average cost per share repurchased was $163.63 and $169.33, respectively. In addition, the Company acquired 4,508 shares and 0.4 million common shares for a total cost of approximately $715,000 and $60 million during the three and nine months ended September 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 September 30, 2022, the Company had $2.51 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)	2022		2021		2022		2021

Basic and Diluted
Net income, as reported	$	454	$	662	$	2,023	$	2,329
Participating share-based awards — allocated income	(4)		(5)		(15)		(17)
Net income available to common shareholders — basic and diluted	$	450	$	657	$	2,008	$	2,312

Common Shares
Basic
Weighted average shares outstanding	235.4		247.7		238.3		250.1

Diluted
Weighted average shares outstanding	235.4		247.7		238.3		250.1
Weighted average effects of dilutive securities — stock options and performance shares	2.5		2.4		2.6		2.3
Total	237.9		250.1		240.9		252.4

Net Income per Common Share
Basic	$	1.91	$	2.65	$	8.43	$	9.24
Diluted	$	1.89	$	2.62	$	8.34	$	9.16

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, 2022:


Stock Options	Number	Weighted Average Exercise Price		Weighted Average Contractual Life Remaining	Aggregate Intrinsic Value ($ in millions)
Vested at end of period (1)	7,180,448	$	131.13	6.0 years	$	171
Exercisable at end of period	4,394,999	$	123.21	4.7 years	$	132

(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 $37 million for the three months ended September 30, 2022 and 2021, respectively, and $141 million and $126 million for the nine months ended September 30, 2022 and 2021, respectively. The related tax benefits recognized in earnings were $7 million for both the three months ended September 30, 2022 and 2021, and $24 million and $22 million for the nine months ended September 30, 2022 and 2021, respectively.

The total unrecognized compensation cost related to all nonvested share-based incentive compensation awards at September 30, 2022 was $212 million, which is expected to be recognized over a weighted-average period of 1.8 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, 2022 and 2021.


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

Net Periodic Benefit Cost (Benefit):
Service cost	$	36	$	35	$	—	$	—

Non-service cost (benefit):
Interest cost on benefit obligation	$	25	$	21	$	—	$	1
Expected return on plan assets	(74)		(69)		—		—

Amortization of unrecognized:
Prior service benefit	—		(1)		—		(1)
Net actuarial (gain) loss	12		28		(1)		(1)
Total non-service cost (benefit)	(37)		(21)		(1)		(1)
Net periodic benefit cost (benefit)	$	(1)	$	14	$	(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, 2022 and 2021.


	Pension Plans				Postretirement Benefit Plans
(for the three months ended September 30, in millions)	2022		2021		2022		2021
Service Cost:
Claims and claim adjustment expenses	$	14	$	14	$	—	$	—
General and administrative expenses	22		21		—		—
Total service cost	36		35		—		—

Non-Service Cost (Benefit):
Claims and claim adjustment expenses	(15)		(9)		—		—
General and administrative expenses	(22)		(12)		(1)		(1)
Total non-service cost (benefit)	(37)		(21)		(1)		(1)
Net periodic benefit cost (benefit)	$	(1)	$	14	$	(1)	$	(1)


	Pension Plans				Postretirement Benefit Plans
(for the nine months ended September 30, in millions)	2022		2021		2022		2021
Net Periodic Benefit Cost (Benefit):
Service cost	$	109	$	106	$	—	$	—
Non-service cost (benefit):
Interest cost on benefit obligation	76		62		2		2
Expected return on plan assets	(222)		(206)		—		—

Amortization of unrecognized:
Prior service benefit	—		(1)		(2)		(3)
Net actuarial (gain) loss	37		82		(3)		(2)
Total non-service cost (benefit)	(109)		(63)		(3)		(3)
Net periodic benefit cost (benefit)	$	—	$	43	$	(3)	$	(3)

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 nine months ended September 30, 2022 and 2021.


	Pension Plans				Postretirement Benefit Plans
(for the nine months ended September 30, in millions)	2022		2021		2022		2021
Service Cost:
Claims and claim adjustment expenses	$	44	$	43	$	—	$	—
General and administrative expenses	65		63		—		—
Total service cost	109		106		—		—
Non-Service Cost (Benefit):
Claims and claim adjustment expenses	(44)		(26)		(1)		(1)
General and administrative expenses	(65)		(37)		(2)		(2)
Total non-service cost (benefit)	(109)		(63)		(3)		(3)
Net periodic benefit cost (benefit)	$	—	$	43	$	(3)	$	(3)

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)	2022			2021				2022			2021

Lease cost
Operating leases	$	19		$	22			$	61		$	67
Short-term leases (1)	1			—				2			1

Lease expense	20			22				63			68
Less: sublease income (2)	—			—				—			—
Net lease cost	$	20		$	22			$	63		$	68

Other information on operating leases

Cash payments to settle a lease liability reported in cash flows	$	23		$	25			$	71		$	78
Right-of-use assets obtained in exchange for new lease liabilities	$	14		$	2			$	21		$	21
Weighted average discount rate	2.33		%	2.37		%		2.33		%	2.37		%
Weighted average remaining lease term	4.5 years			4.6 years				4.5 years			4.6 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 $1.88 billion and $1.70 billion at September 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 September 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 September 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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