9-22-15

The Travelers Companies (TRV)Efficiency in InsuranceDirector: Dylan JamesSenior Analyst: Anurag BansalSenior Analyst: Jack Butler

9-22-15

Investment ThesisOutline

Industry Position Efficient financial metrics (Combined ratio, RoE)

Cheap Valuation Lowest P/E of DJIA, stable & consistent growth

Rising Rates Poised to benefit from rising rate environment

9-22-15

Industry OverviewThe P&C Industry

Property losses to your business, home or car Legal liability from injury/damage to property of others

HOMEOWNERS

AUTO

The relationship between interest rates and insurance companies is linear and straightforward, meaning the higher the rate, the greater the growth

9-22-15

Industry OverviewThe Business Model

Insurance Company

$1000 $950Fixed

Income Investments

$1000$900

Profit: $1000 + $50 - $900

=$150 Start with 0 [Balance $0] +$1000 premiums [Balance $1000] Keep $50 reserve, invest $950 [Balance $1000] Earn $50 investment income [Balance $1050] Pay out $900 in claims [Balance $150]

Policyholder

9-22-15

Industry Overview

Combined

Ratio

Incurred Losses + ExpensesEarned Premium

COMBINED RATIO - A measure of profitability used by an insurance company to indicate how well it is performing in its daily operations

Combined

Ratio 100% Efficient

Management

Key Metrics

Retention Rate – The percentage of prior period premiums, accounts or policies available for renewal in the current

period and were renewed

9-22-15

Operating Return on

Equity

Operating IncomeShareholders’ Equity

Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested

Management believes that analysis of operating ROE enhances understanding of the efficiency with which the company deploys its capital

Return on

Equity

Net IncomeShareholders’ Equity

Industry OverviewKey Metrics

9-22-15

Company Overview

Founded in 1853 Diversified P&C Insurer Component of DJIA Rated A by S&P

Summary

9-22-15

Company Overview

Business & International Insurance Bond & Specialty Insurance Personal Insurance

Business Model

9-22-15

Company Overview

Provides P&C insurance to wide range of businesses

Worker comp, property, general liability

14.5B revenue (61%)

Business Insurance

9-22-15

Company Overview

Range of P&C insurance for individual risks

Auto, homeowners, identify theft, personal property, etc.

$7.1B earned premiums (30%)

Personal Insurance

9-22-15

Company Overview

Financial risk management, management liability, commercial surety, etc…

$2.1B earned premiums (9%)

Bond & Specialty

9-22-15

Company OverviewData Drive Analytics

9-22-15

Company OverviewManagement

Alan D. SchnitzerCEO, The Travelers Companies, Inc.

w.e.f. December 1, 2015

BSE, Accounting and Finance from The Wharton School

Doctor of Law (JD) from Columbia University

CEO of Travelers’ Business and International Insurance

Vice Chairman of The Travelers Companies, Inc.

9-22-15

Expanded ThesisIndustry Position

9-22-15

Expanded ThesisIndustry Position

9-22-15

Expanded ThesisIndustry Position

9-22-15

Expanded ThesisIndustry Position

9-22-15

Expanded ThesisAttractive Valuation

9-22-15

Expanded ThesisPoised to Benefit from Rising Interest Rate Environment

Fed lowers rates Portfolio Yields Profits

Fed raises rates Portfolio Yields Profits

9-22-15

ValuationExpanding Margins & Attractive Multiples

9-22-15

Risks & Mitigants

Catastrophe losses could increase loss ratios

Softening premiums market can impact top line growth

Stagnant interest rates delay increase in fixed income portfolio

Unpredictable and industry-wide risk offset by portfolio returns

Competent management team able to optimize underwriting standards

Management able to keep operating ROE high despite rate environment

Risks Mitigants

9-22-15

ConclusionQuestions?