The Travelers Companies, Inc.

Public Company
Incorporated: 1853 as St. Paul Mutual Insurance Compan
Employees: 30,800
Total Assets: $103.81 billion (2013)
Stock Exchanges: New York
Ticker Symbol: TRV
NAICS: 524126 Direct Property and Casualty Insurance Carriers; 524130 Reinsurance Carriers

The Travelers Companies, Inc., is the second-largest commercial insurer in the United States. Travelers offers property and casualty insurance to businesses, surety and financial liability coverages, and property and casualty insurance covering individuals’ personal risks, such as automobile and homeowners insurance. The company maintains branch offices in 50 states and controls subsidiaries operating in the United Kingdom, Ireland, Singapore, China, Canada, and Brazil. Travelers‘ three principal executive offices are located in New York City; St. Paul, Minnesota; and Hartford, Connecticut.

BIRTH OF THE ST. PAUL: 1853

In the years preceding the founding of The St. Paul, people living in the Minnesota Territory were insured primarily by agents representing eastern insurance companies. Most wintertime claims and claim payments had to wait for spring, when travel and communication resumed. In 1853 Alexander Wilkin, the secretary of the territory, and The St. Paul’s first and youngest president, approached his neighbors, George and John Farrington, with the idea of starting a St. Paul, Minnesota–based insurance company. The need for local fire insurance was particularly great, and George Farrington, a local banker, saw the opportunity to stem the flow of cash out of the territory. Farrington introduced a bill of incorporation in the territorial legislature that same year, and St. Paul Mutual Insurance Company was incorporated.

The St. Paul was to operate as a mutual company, but it also sold traditional, or stock, policies. Mutual policyholders were to share in both the profits and losses of the company, while the stock policyholders would not. The company’s charter permitted it to insure on all descriptions of property against loss or damage by fire and to insure on all descriptions of boats and vessels and their cargo.

The company needed to sell $100,000 of insurance to raise the capital to begin business. To accomplish this end, the company’s 10 founders each applied for $10,000 policies on their own property. Shortly thereafter it was discovered that none of the founders possessed property worth $10,000. The members of the board rejected their own applications and rewrote them for $5,000 each. In February 1854 the company issued its first policy, a mutual policy for $800. It insured the home and furnishings of Robert A. Smith, the territory’s librarian and private secretary to Governor Willis A. Gorman, who in turn purchased the company’s first stock policy.

FIRST CLAIM PAID: 1855

The St. Paul sustained its first fire loss in April 1855 when a row of offices and a bakery burned to the ground, resulting in $3,000 in claims. This loss was followed by a much greater problem, the panic of 1857, in which many New York companies folded. In St. Paul all but three of the local banks were forced to close. The St. Paul and other insurance companies, consequently, had to accept notes of indebtedness as premium payments. These notes could not be converted into cash to cover day-to-day operating expenses and, as a result, 47 fledgling insurance companies closed. The St. Paul, faced with severe cash flow problems, elected not to issue any new policies for a time and was forced to sell its office furniture to maintain operations.

A period of stagnation occurred starting in 1861, during the Civil War. The St. Paul’s president, Alexander Wilkin, died on a Mississippi battlefield. He was succeeded by James C. Burbank, the company’s first full-time president, in April 1865. Also in 1865, The St. Paul reorganized as a stock company and changed its name to St. Paul Fire and Marine Insurance Company. One of Burbank’s first duties was to oversee The St. Paul’s expansion into the Canadian market. By 1866 the company was writing business in Manitoba. A shareholder-elected board voted to pay semiannual dividends, and in July 1867 the company issued its first stock dividend, of $1.50 per share. Following the Civil War, The St. Paul grew. It constructed a new corporate headquarters. A model for fire-resistant structures of the future, the building was built of metal and stone.

DISASTER RESPONSE BUILDS REPUTATION: 1871–1906

In 1871 the Great Chicago Fire strained the company’s resources. The fire left 275 people dead and 100,000 people homeless and destroyed more than 17,000 buildings. More than 200 insurance companies experienced fire-related losses and many were financially ruined. About one-quarter of the 200 companies went out of business and most that survived paid as little as four cents on the dollar to settle their claims. At a meeting of The St. Paul’s board, it was agreed that all claims would be paid in full. President Burbank predicted that this decision ultimately would bring a return as word got out that the company was covering its losses.

In that year claims submitted by policyholders exceeded by 165 percent the amount the company collected in premiums. The St. Paul paid a total of $140,000 to cover losses. The St. Paul’s assets were greatly reduced, and it paid no dividends that year. The company’s sales did improve as a result of the decision to pay all claims, however, and The St. Paul recouped its losses.

Burbank died in 1876, and the company’s secretary, Charles H. Bigelow, was elected president. Shortly thereafter The St. Paul was faced with the insurance price war of 1877. The insurance market was becoming more competitive as the country grew and prospered. The result was too many insurance companies offering lower prices to compete. Under Bigelow’s leadership the company dropped unprofitable agencies, introduced new products such as cyclone insurance and crop hail coverage, and instituted more stringent guidelines in accepting new customers. The St. Paul rode out the price war intact, without lowering its rates.

During the late 19th century, the company expanded into new types of insurance coverage. The San Francisco Earthquake and Fire of 1906 took a heavy toll on The St. Paul’s new product development plans, however. Claims in excess of $1.2 million were paid, in full, and the company’s reputation grew. In 1911 Charles Bigelow died, and his son, Frederic Bigelow, succeeded him as president. In the years following Frederic Bigelow’s appointment, the United States prepared for World War I. The St. Paul adjusted its charter to include losses incurred resulting from acts of war. In 1917 The St. Paul covered the loss of 260 vessels, totaling more than $4 million, most of which was repaid by Germany over 50 years.

During the war The St. Paul began overseas expansion in a modest fashion, when it began to issue policies in Great Britain to cover losses incurred as a result of bomb damage, but in a relatively short period of time the British government cut the rates charged by U.S. companies by about 50 percent. The St. Paul, however, continued to insure against bomb damage in England for the duration of the war. The St. Paul also added automobile insurance to its product line during this period.

KEY DATES

1853:

St. Paul Mutual Insurance Company is founded.

1865:

Company reorganizes as a stock company and renames itself St. Paul Fire and Marine Insurance Company (The St. Paul).

1926:

Firm begins offering liability coverage through a newly formed subsidiary, St. Paul Mercury Indemnity Company.

1957:

With acquisition of Western Life Insurance Company, The St. Paul enters the life insurance market.

1968:

Company reorganizes under a holding company, The St. Paul Companies, Inc.

1992:

Record losses from catastrophic storms and a goodwill writedown send The St. Paul into a net loss for the year.

1998:

The St. Paul acquires USF&G Corporation.

2004:

In a $17.9 billion deal, The St. Paul acquires TravelersProperty Casualty Corp. and then renames itself The St. PaulTravelers Companies, Inc.

2009:

After changing its name to The Travelers Companies, Inc., the company moves its headquarters to New York City.

2013:

The Dominion of Canada General Insurance Company is acquired for $1.1 billion.

EXPANSION AND DIVERSIFICATION: 1919–45

As a result of massive losses incurred during World War I, most European insurance companies were all but paralyzed. The St. Paul became a charter member of the American Foreign Insurance Association, a group of companies that pooled its resources, and with combined capital of $135 million, began to market insurance abroad. The company was soon doing business in 25 foreign markets, and another period of diversification and new product development began.

Throughout the 1920s The St. Paul introduced allrisk coverage for the jewelry trade and for other “priceless objects” of artistic and historical significance. The policy insured items in transit from almost every known risk, except theft, because fire and marine insurance companies were prohibited from writing liability coverage. The St. Paul’s leadership decided, therefore, that a liability company was needed, and in 1926 a subsidiary, St. Paul Mercury Indemnity Company, was formed. The St. Paul also added aircraft insurance and surety bonds to its product line in 1929.

After serving as The St. Paul’s president for 27 years, Frederic Bigelow became chairman in 1938, and Charles F. Codere became The St. Paul’s fifth president. Shortly thereafter, the United States entered into World War II. At the onset of the war, U.S. insurance companies wrote marine insurance through a specially formed syndicate, but as losses grew, the U.S. government assumed the burden of covering the staggering war losses. The War Damage Corporation, a company financed by the federal government and run by private insurance companies, wrote more than nine million policies and collected close to $250 million in premiums by the war’s end.

ACQUISITIONS FUEL GROWTH: 1957–63

In 1948 Codere became chairman, and A. B. Jackson was elected The St. Paul’s new president. Codere and Jackson worked well together, and the company greatly expanded its product lines and services. Liability insurance was offered to real estate brokers, insurance agents, and hospitals. The St. Paul refined its package policy program, allowing its agents to offer more and diverse coverage in one policy. Package policies had been introduced during World War II to provide the military with an insurance package to cover liability, shipping, and fire insurance. This method of issuing coverage continued after the war, with The St. Paul offering packages for a variety of commercial risks. Jackson also was instrumental in the organization of two new associations to insure nuclear reactors.

In 1957, with the acquisition of the Western Life Insurance Company of Helena, Montana, The St. Paul broke into the life insurance market. Management training programs were also initiated in 1958, and in 1961 The St. Paul rebuilt and enlarged its offices.

When Codere retired in 1963, Jackson succeeded him and Ronald M. Hubbs became The St. Paul’s next president. During the 1960s the emphasis was on customer service. Hubbs was instrumental in the development of more than 40 property and liability service centers nationwide. Each center was selfcontained. It had its own underwriters, risk management staff, marketing, claims and policy services, and office support personnel. The company believed decentralization would bring it closer to its customers.

REORGANIZATION: 1968

In 1968 The St. Paul reorganized. St. Paul Fire and Marine Insurance Company became The St. Paul Companies, Inc. The name St. Paul Fire and Marine Insurance Company was retained for the propertyliability insurance subsidiary. In the years following the reorganization, The St. Paul Companies diversified its insurance-related business and branched into other areas of consumer and business services.

In 1970 St. Paul Guardian Insurance Company was formed to market personal lines of insurance. Two years later St. Paul Investment Management Company, an investment management firm, was started, and in 1973 St. Paul Life Insurance Company, whose purpose was to market life insurance through independent agents representing St. Paul Fire and Marine, was formed.

In 1973 Jackson retired as chairman. He was succeeded by Hubbs, and Carl B. Drake became the eighth president of The St. Paul Companies. Less than one year later, The St. Paul acquired John Nuveen & Co., a trader, marketer, underwriter, and distributor of securities. Nuveen was founded in Chicago in 1898 and had been a pioneer in tax-exempt bonds for individual investors, which it introduced in 1961. The St. Paul also added St. Paul Risk Services Inc., which provided consulting services to self-insure institutions and firms, and St. Paul Surplus Lines, which again broadened the coverage offered by St. Paul Fire and Marine.

In the midst of this growth the public was becoming more concerned about the quality of the products and services it was receiving. This concern, combined with changes in the medical field (in particular, new drugs, transplants, the growth of large group medical practices and group medical plans, and less personal doctor-patient relationships), contributed to an increased number of medical liability claims. Insurance companies selling malpractice coverage began to suffer massive losses. Medical cases often took years to settle, and court awards continued to grow.

The St. Paul, the largest carrier of medical liability insurance, stopped accepting new policies for a short time. When the company began to write new business again, it based premiums on the practitioners’ past record. This “claims made” standard had been used in other types of liability for many years. It led to more accurate pricing and seemed to stabilize the market. The company also raised its malpractice premiums. The company later created a medical services division, which cbrought together The St. Paul’s underwriting, marketing, and administrative expertise in health care–related fields. The company introduced simplified language policies, starting with its personal liability catastrophe coverage, with the hope that it would reduce claims.

PERIOD OF RETRENCHMENT: 1980–84

In 1980 Chairman Drake refocused mainly on insurance-related businesses. The company began to divest most noninsurance subsidiaries (with the exception of the John Nuveen asset management and investment banking unit) and resumed expansion of its insurance-related interests. Under a new president, Robert J. Haugh, these divestitures were completed by 1984, when The St. Paul’s net loss was $210 million. The company then undertook a new series of acquisitions. Among these purchases were Seaboard Surety Company, a provider of fidelity and surety bonds, and Swett & Crawford Group, a Los Angeles–based wholesale broker in excess and surplus lines. Atwater McMillian (renamed St. Paul Specialty Underwriting in 1988), a company handling specialty risk accounts and surplus lines, was formed in 1981.

During the 1980s more demanding consumers, an evolving marketplace, and government deregulation resulted in another price war that hurt The St. Paul’s liability business. During the same years, The St. Paul also expanded its involvement in European markets. The company acquired the London-based Minet Holdings PLC in 1988, making The St. Paul the seventh-largest insurance brokerage firm in the world. Shortly after the Minet acquisition, The St. Paul established St. Paul (U. K.) Limited.

On May 1, 1990, Haugh retired and was replaced by The St. Paul’s new chairman, president, and CEO, Douglas W. Leatherdale, who continued the company’s strategy for an increasing presence in the European market. The St. Paul also formed Minet Europe Holdings Limited, as part of the Minet Group, to manage the expansion of The St. Paul’s European market.

After two and a half bitter years of litigation and regulatory oversight, The St. Paul in mid-1990 successfully ended an attempted hostile takeover by Alleghany Corporation. In May 1992 The St. Paul completed an initial public offering (IPO) for the highly successful, and newly renamed, The John Nuveen Company, selling eight million shares at $18 per share and leaving The St. Paul with a 74 percent stake (which increased to 77 percent by mid-1997). For the year, John Nuveen enjoyed record revenues of $221 million, 23 percent higher than the previous year, but The St. Paul as a whole did not fare as well.

Record catastrophic storms that year, including Hurricanes Andrew and Iniki and Typhoon Omar, led to a record $445 million in catastrophe losses, which when coupled with a $365 million writedown on the goodwill associated with the continuously troubled Minet Group subsidiary, resulted in the worst operating loss in company history, a $333.8 million deficit.

RESTRUCTURED OPERATIONS: 1993

In May 1993 The St. Paul launched a restructuring of its U.S. underwriting businesses (known collectively as St. Paul Fire and Marine Insurance), partly in response to the losses of the previous year. Nearly two dozen departments were streamlined into three new entities, St. Paul Specialty, which housed such niche underwriting operations as medical services; St. Paul Personal & Business, responsible for underwriting personal insurance for individuals and commercial insurance for small business owners; and St. Paul Commercial, responsible for midsized commercial customers. In August 1993 the St. Paul Personal & Business unit was bolstered through the $420 million purchase of Economy Fire & Casualty from Kemper Corporation. With no repeat of the spate of catastrophic 1992 storms, The St. Paul returned to profitability in 1993, posting record operating earnings of $386.6 million, with records following for 1994 ($413.9 million) and 1995 ($464.9 million) as well.

Results for 1996 were not nearly so rosy, as the company suffered its second worst catastrophe losses in history, $207 million, stemming in large part from an East Coast blizzard, flooding in the West and Southwest, and Hurricane Fran. In July of that year, St. Paul Fire and Marine strengthened its position in the small to midsized commercial underwriting market with the purchase of Northbrook Holdings, Inc., from Allstate Insurance Company for $190 million. Then in December The St. Paul decided to sell its loss-making Minet Group, finally unloading it in May 1997 to the insurance brokerage firm Aon, based in Chicago.

Meanwhile, John Nuveen added $13.6 billion to its assets under management through the acquisitions of Flagship Resources in January 1997 and Rittenhouse Financial Services in July 1997. St. Paul International Underwriting, the underwriter of non-U.S. property and liability insurance, was active as well, opening new offices in France, Germany, Canada, Mexico, and South Africa and acquiring the Botswana General Insurance Company of South Africa in October 1997.

USF&G ACQUISITION: 1998

In the rapidly consolidating insurance industry of the 1990s, The St. Paul Companies continued to be on the side of the acquirers. With the company’s strong balance sheet backing him, Leatherdale next engineered a blockbuster deal, the April 1998 acquisition of USF&G Corporation for approximately $3.9 billion in stock and assumed debt. In buying the Baltimore-based USF&G, a firm founded in 1896, The St. Paul propelled itself from the 13th- to the eighth-largest property and casualty insurer in the nation. The companies’ operations meshed well geographically, with The St. Paul’s strength in the Midwest, and USF&G’s in the South and Northeast. To integrate the USF&G operations, The St. Paul launched an 18-month plan to slash 2,600 jobs from the combined workforce.

The St. Paul barely eked out a profit of $89.3 million in 1998 as it again suffered catastrophic losses. In the wake of these results, Leatherdale elected to focus the company on the more profitable commercial side of its business, and more specifically the specialty commercial sector, jettisoning several individual insurance units over a two-year period. The St. Paul sold its personal property and casualty lines to MetLife Auto & Home for $600 million in 1999, its nonstandard auto insurance unit to the Prudential Insurance Company of America in 2000 for $200 million, and its Fidelity & Guaranty Life Insurance unit to the U.K.-based Old Mutual PLC for $635 million in 2001.

In the meantime, The St. Paul bolstered its health care business in April 2000 by acquiring MMI Companies for $320 million in cash and debt. MMI, based in Deerfield, Illinois, specialized in services for the health care industry, including clinical risk management, operational-consulting services, and insurance and reinsurance in the United States and London. Later in 2000 The St. Paul elected to sell an unprofitable subsidiary of MMI, Unionamerica Insurance Co., a London-based unit focusing on medical-liability reinsurance. In what turned out to be the final deal of the Leatherdale era, The St. Paul acquired Toronto-based London Guarantee Insurance Company, Canada’s second-largest specialty property and casualty insurer, for $80 million in late 2001.

FISHMAN TAKES THE HELM: 2001

As a result of the September 11, 2001, terrorist attacks against the United States, The St. Paul incurred claims totaling approximately $941 million. This propelled the firm into a net loss for the year of $1.09 billion. Shortly after the attacks, in the middle of the following month, Jay S. Fishman was brought onboard as chairman and CEO, succeeding Leatherdale. Fishman had been the head ofTravelers Insurance Group, a unit of Citigroup Inc., but elected to leave for an opportunity to run his own company rather than wait for a chance to succeed Citigroup’s Chairman and CEO Sanford Weill.

Fishman quickly put his stamp on The St. Paul. In a reversal of one of his predecessor’s moves, The St. Paul once again began seeking out general commercial property and casualty business, concentrating on small and midsize businesses, ones with revenues under $500 million. The company also substantially reduced its international operations, retaining only its businesses in the United Kingdom, Canada, and Mexico, and in December 2001 began a gradual pullout from medicalmalpractice insurance, a business in which it was paying out more in claims than it was collecting in premiums.

In reinsurance, the company narrowed the types of reinsurance it offered and then converted the remaining reinsurance operation into a separate Bermuda company with The St. Paul as a major investor. Fishman also slashed about 1,100 jobs from the workforce. On the downside, The St. Paul reached a settlement in a legacy asbestos case inherited through the takeover of USF&G. In mid-2002 the company settled a case involving Western Asbestos, agreeing to a $987 million payment, which resulted in a net charge of $380 million for 2002.

MERGER WITH TRAVELERS PROPERTY CASUALTY CORP.: 2004

Fishman’s blockbuster move, however, was the $17.9 billion stock-swap acquisition of Travelers Property Casualty Corp., Fishman’s old company, which Citigroup had spun off into a separate company in 2002. Announced in November 2003 and completed in April 2004, the deal created the second biggest commercial property and casualty insurer in the United States, trailing only American International Group, Inc. It also brought homeowners and auto insurance back into The St. Paul fold and combined Travelers‘ more extensive general commercial lines with The St. Paul’s stronger specialty insurance business.

Upon the deal’s completion The St. Paul changed its name to The St. Paul Travelers Companies, Inc., and retained its St. Paul headquarters, and Travelers became a subsidiary while staying based in Hartford, Connecticut. Fishman remained CEO but temporarily relinquished the chairmanship to Robert I. Lipp, head ofTravelers. In late 2005 Fishman succeeded Lipp as chairman.

As St. Paul Travelers moved ahead with integration plans that included cutting 3,000 jobs from the combined workforce of 30,000 and aims to save $350 million in annual operating costs, the merger got off to a rough start. In July 2004 the company announced a reserve charge of $1.62 billion, a charge about twice as large as analysts had been expecting, that officials said was needed to reconcile differing accounting treatments at the two merged entities. The company also lost some commercial business as independent agents who had been selling products of The St. Paul chafed at the more stringent underwriting policies and sales practices of Travelers. Moreover, the string of major storms that hit the southeastern United States in 2004 resulted in before-tax claims of $612 million at St. Paul Travelers. Net income thus totaled just $955 million on revenues of $22.54 billion.

In 2005 the combination of catastrophic claims and special charges was even higher than the previous year. The former figure, largely attributable to the devastation wrought by Hurricane Katrina, amounted to $1.5 billion after-tax, while the company also added $548 million to its asbestos reserves. Needing to raise cash, St. Paul Travelers elected to sell off its majority stake in Nuveen, garnering $2.4 billion in the process. Coupled with improving performance in the company’s core operations, the Nuveen divestment helped St. Paul Travelers bump up its net income for the year to $1.62 billion.

The year 2006 started out inauspiciously, as a U.S. Circuit Court of Appeals ruling exposed the company to potential additional asbestos liabilities of more than $1 billion in a case involving ACandS Inc., a former distributor and installer of asbestos products. As St. Paul Travelers continued to wrestle with its asbestos claims and made plans for the prospect of another round of devastating hurricanes and tropical storms, surprising speculation about another merger emerged.

THE RETURN OF THE RED UMBRELLA: 2007

In 2007 the company turned its attention to an identity problem. Although the company had begun to market its products and services under the Travelers name, it continued to use The St. PaulTravelers as its corporate name. “We recognized that that was still creating some confusion in the marketplace,” Fishman said in the February 13, 2007, release of A.M. Best Newswire. Accordingly, the company purchased the iconic red umbrella logo, which had been used by Citigroup since 2004, and changed its corporate name to The Travelers Companies, Inc.

Next, another symbolic change was made, though observers would be hard pressed to learn of the change. Without issuing a press release on the move, the company changed the location of its corporate headquarters from St. Paul to New York City in 2009. Fishman had remained on the East Coast since taking over as CEO in 2001. Industry pundits theorized that the change in headquarters was made to accommodate Fishman’s desire to reside on the East Coast.

The first years of the next decade were pocked by natural disasters that took hundreds of lives and resulted in historically high financial losses. Between April and May in 2011, multiple tornadoes and hail storms swept across the Midwest and the South, resulting in approximately $1 billion in losses for the company, the largest tornado and storm loss ever reported by Travelers in a single quarter.

The following year the arrival of the Atlantic hurricane season brought another bout of record-setting devastation. Hurricane Sandy hit the northeastern coast in October 2012 and caused $68 billion worth of damage, becoming the second-costliest hurricane in U.S. history. By the end of the year, Travelers released a preliminary estimate of $650 million in net losses based on a gross loss of $1.13 billion incurred from the storm.

ACQUISITIONS IN BRAZIL AND CANADA: 2011–13

As Travelers paid the price for catastrophic damage caused by tornadoes and storms, it recorded progress on expanding its overseas presence. In 2011 the company paid $410 million to acquire a 43 percent stake in JMalucelli Participações em Seguros e Resseguros S.A., the market leader in the surety insurance business in Brazil. At the end of 2012, the company exercised an option to increase its stake in the Brazilian market leader and became a 49.5 percent owner of the firm.

Roughly six months after increasing its equity interest in JMalucelli,Travelers made another move on foreign soil, though much closer to home. In mid-2013 the company agreed to pay $1.1 billion to acquire The Dominion of Canada General Insurance Company from E-L Financial Corporation Limited. Dominion, whose three largest lines of business were auto liability, personal property, and personal auto accident, reported $1.24 billion in direct premiums written in 2012. After the transaction was completed in November 2013, Dominion’s operations were integrated with Travelers‘ Canadian operations based in Toronto, Ontario.

In 2014 Fishman revealed he had been diagnosed with an unspecified neuromuscular condition. He was adamant that the diagnosis would not keep him from leading the company. “You should know that I feel good and, with the full support of our board of directors, nothing about this circumstance changes my ability or plan to continue as Chairman and CEO,” he wrote in a letter to employees that was published in part in the November 14, 2014, release of A.M. Best Newswire. “I remain fully engaged and committed.”

COMPANY PERSPECTIVES

In an uncertain world, Travelers is an insurance leader, committed to keeping pace with the ever-changing needs of our customers, and anticipating their needs for the future. There is no stronger testament to our dedication to protecting customers from loss than our continued innovation and ability to transform our industry.