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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )

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Filed by the Registrant

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Filed by a Party other than the Registrant

CHECK THE APPROPRIATE BOX:
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The Travelers Companies, Inc.

(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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485 Lexington Avenue New York, New York 10017

April 5, 2019

Dear Shareholders:

Please join us for The Travelers Companies, Inc. Annual Meeting of Shareholders on Wednesday, May 22, 2019, at 9:00 a.m. (Eastern Daylight Time) at the Hartford Marriott Downtown, 200 Columbus Boulevard, Hartford, Connecticut 06103.

Attached to this letter are a Notice of Annual Meeting of Shareholders and Proxy Statement, which describe the business to be conducted at the meeting. We also will report on matters of current interest to our shareholders.

At this year’s meeting, you will be asked to:

1.	Elect the 10 director nominees listed in the Proxy Statement;
2.	Ratify the appointment of KPMG LLP as our independent registered public accounting firm for 2019;
3.	Consider a non-binding vote to approve executive compensation;
4.	Approve an amendment to The Travelers Companies, Inc. Amended and Restated 2014 Stock Incentive Plan;
5.	Consider a shareholder proposal relating to a diversity report, including EEOC data, if presented at the Annual Meeting; and
6.	Consider such other business as may properly come before the Annual Meeting and any adjournments or postponements thereof.

The Board of Directors recommends that you vote FOR each of the nominees listed in the Proxy Statement, FOR items 2, 3 and 4 and AGAINST item 5.

Your vote is important. Whether you own a few shares or many, and whether or not you plan to attend the Annual Meeting in person, it is important that your shares be represented and voted at the meeting. You may vote your shares by proxy on the Internet, by telephone, or by completing a paper proxy card and returning it by mail. You may also vote in person at the Annual Meeting.

Thank you for your continued support of Travelers.

Sincerely,

Alan D. Schnitzer
Chairman and Chief Executive Officer

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How To Vote By Proxy

If, at the close of business on March 26, 2019 (the “Record Date”), you were a shareholder of record or held shares through The Travelers Companies, Inc. (the “Company” or “Travelers”) 401(k) Savings Plan or through a broker or nominee, you may vote your shares by proxy on the Internet, by telephone or by mail. For shares held of record or through a broker or nominee, you may also vote in person at the Annual Meeting of Shareholders to be held on May 22, 2019 (the “Annual Meeting”). For shares held through a broker or nominee, you may vote by submitting voting instructions to your broker or nominee. To reduce our administrative and postage costs, we ask that you vote on the Internet or by telephone, both of which are available 24 hours a day. You may revoke your proxies or change your vote at the times and as described on page 85.

If you are a shareholder of record or hold shares through a broker or bank and are voting by proxy, your vote must be received by 11:59 p.m. (Eastern Daylight Time) on May 21, 2019 to be counted.

If you hold shares through Travelers’ 401(k) Savings Plan, your vote must be received by 11:59 p.m. (Eastern Daylight Time) on May 20, 2019 to be counted. Those votes cannot be changed or revoked after that time, and those shares cannot be voted in person at the Annual Meeting.

	To Vote by Proxy Over the Internet	●Go to the website www.proxyvote.com and follow the instructions, 24 hours a day, seven days a week. ●You will need the 16-digit number included on your Notice of Internet Availability of Proxy Materials (the “Notice”) or on your proxy card.
	To Vote by Proxy Over the Telephone	●From a touch-tone telephone, dial (800) 690-6903 and follow the recorded instructions, 24 hours a day, seven days a week. ●You will need the 16-digit number included on your Notice or on your proxy card.
	To Vote by Proxy by Mail	●If you have not already received a proxy card, you may request a proxy card from us by following the instructions on your Notice. ●When you receive the proxy card, mark your selections on the proxy card. ●Date and sign your name exactly as it appears on your proxy card. ●Mail the proxy card in the postage-paid envelope that will be provided to you.

How To Vote In Person

If you plan to attend the Annual Meeting and vote in person, you must present a form of personal identification (such as a driver’s license) along with your Notice, proxy card or proof of ownership (and if your shares are held in street name, a bank or brokerage account statement as proof of ownership). You may vote shares held in street name at the Annual Meeting only if you obtain a signed proxy from the recordholder (broker or other nominee) giving you the right to vote the shares.

Even if you plan to attend the Annual Meeting, we encourage you to vote in advance using one of the voting methods described above so that your vote will be counted if you later decide not to attend the meeting.

Your vote is important. Thank you for voting.

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Notice of Annual Meeting of Shareholders

Date and Time May 22, 2019 9:00 a.m. Eastern Daylight Time			Location Hartford Marriott Downtown 200 Columbus Boulevard Hartford, Connecticut 06103			Who Can Vote — Record Date You may vote at the Annual Meeting if you were a shareholder of record at the close of business on March 26, 2019

Items of Business

		Board Recommendation
1.	Elect the 10 director nominees listed in the Proxy Statement.	FOR each director nominee
2.	Ratify the appointment of KPMG LLP as our independent registered public accounting firm for 2019.	FOR
3.	Consider a non-binding vote to approve executive compensation.	FOR
4.	Approve an amendment to The Travelers Companies, Inc. Amended and Restated 2014 Stock Incentive Plan.	FOR
5.	Consider a shareholder proposal relating to a diversity report, including EEOC data, if presented at the Annual Meeting.	AGAINST

Voting by Proxy

To ensure your shares are voted, you may vote your shares by proxy on the Internet, by telephone or by completing a paper proxy card and returning it by mail. Internet and telephone voting procedures are described on the preceding page and in the General Information About the Meeting section beginning on page 84 of the Proxy Statement and on the proxy card.

Shareholders will also consider such other business as may properly come before the Annual Meeting and any adjournments or postponements thereof.

By Order of the Board of Directors,

Wendy C. Skjerven
Corporate Secretary

This Notice of Annual Meeting and the accompanying Proxy Statement are being distributed or made available, as the case may be, on or about April 5, 2019.

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Proxy Statement

Table of Contents

Proxy Statement Summary		1
Corporate Governance		4
Item 1 – Election of Directors		4
Nominees for Election of Directors		4
Governance of Your Company		8
Non-Employee Director Compensation		21
Audit Committee Matters		25
Item 2 – Ratification of Independent Registered Public Accounting Firm		25
Audit and Non-Audit Fees		25
Report of the Audit Committee		26
Executive Compensation		27
Item 3 – Non-Binding Vote to Approve Executive Compensation		27
Compensation Discussion and Analysis		28
2018 Overview		28
Pay-for-Performance Philosophy		32
Objectives of Our Executive Compensation Program		33
Compensation Elements and Decisions		35
Additional Compensation Information		47
Total Direct Compensation for 2016-2018 (Supplemental Table)		51
Compensation Committee Report		51
Summary Compensation Table		52
Grants of Plan-Based Awards in 2018		54
Narrative Supplement to Summary Compensation Table and Grants of Plan-Based Awards in 2018		55
Option Exercises and Stock Vested in 2018		56
Outstanding Equity Awards at December 31, 2018		57
Post-Employment Compensation		58
Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control		62
Other Voting Items		67
Item 4 – Amendment to The Travelers Companies, Inc. Amended and Restated 2014 Stock Incentive Plan		67
Item 5 – Shareholder Proposal Relating to a Diversity Report, Including EEOC Data		76
Other Information		81
Share Ownership Information		81
CEO Pay Ratio		83
General Information About the Meeting		84
Shareholder Proposals for 2020 Annual Meeting		88
Equity Compensation Plan Information		88
Other Business		89
Annex A: Reconciliation of GAAP Measures to Non-GAAP Measures and Selected Definitions		A-1
Annex B: The Travelers Companies, Inc. Amended and Restated 2014 Stock Incentive Plan		B-1

The Travelers Companies, Inc.  |  2019 Proxy Statement

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Proxy Statement Summary

Proxy Statement Summary

This Proxy Statement summary highlights certain information contained in this Proxy Statement, but does not contain all of the information you should consider when voting your shares. Please read the entire Proxy Statement carefully before voting.

Item 1

Election of Directors

Your Board recommends a vote FOR each director nominee.

See page 4

Director Nominees

		Committees
Name	Independent
Alan L. Beller Senior Counsel of Cleary Gottlieb Steen & Hamilton LLP	✓
Janet M. Dolan President of Act 3 Enterprises, LLC	✓
Patricia L. Higgins President and Chief Executive Officer of Switch and Data Facilities, Inc. (retired)	✓
William J. Kane Audit Partner with Ernst & Young (retired)	✓
Clarence Otis Jr. Chairman and Chief Executive Officer of Darden Restaurants, Inc. (retired)	✓
Philip T. (Pete) Ruegger III Chairman of the Executive Committee of Simpson Thacher & Bartlett LLP (retired)	✓
Todd C. Schermerhorn Senior Vice President and Chief Financial Officer of C. R. Bard, Inc. (retired)	✓
Alan D. Schnitzer Chairman and Chief Executive Officer of Travelers
Donald J. Shepard Chairman of the Executive Board and Chief Executive Officer of AEGON N.V (retired)	✓
Laurie J. Thomsen Executive Partner of New Profit, Inc. (retired)	✓

Member

2019 Proxy Statement  |  The Travelers Companies, Inc.

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Proxy Statement Summary

Corporate Governance Highlights

The Travelers Board is committed to high standards of corporate governance. Highlights include:

BOARD COMPOSITION AND ACCOUNTABILITY		SHAREHOLDER RIGHTS		BOARD COMPENSATION
✓All committees other than the Executive Committee are comprised of independent directors ✓Engaged Lead Independent Director ✓Regular executive sessions ✓Active risk oversight ✓Director education on matters relevant to the Company, its business plan and risk profile ✓Annual Board evaluations		✓Annually elected directors ✓Majority voting standard for director elections ✓Single voting class ✓Proxy access ✓No poison pill		✓Robust director stock ownership guidelines ✓Non-management directors currently receive more than 50% of their annual compensation under the Director Compensation Program in the form of deferred stock units ✓Biennial review to assess the appropriateness of the Director Compensation Program

Item 2

Ratification of Independent Registered Public Accounting Firm

Your Board recommends a vote FOR this Item.

See page 25

Item 3

Non-Binding Vote to Approve Executive Compensation

Your Board recommends a vote FOR this Item.

See page 27

Executive Compensation Highlights

With our pay-for-performance philosophy and compensation objectives as our guiding principles, we deliver annual executive compensation through the following elements:

		Element				CEO Compensation Mix		Other NEOs
		Base Salary Page 36		●Base salaries are appropriately aligned with Compensation Comparison Group.
		Annual Cash Bonus Page 37		●Core return on equity is the primary factor in the Compensation Committee’s evaluation of the Company’s performance. ●In addition, the Committee considers other metrics, including, core income and core income per diluted share, and the metrics that contribute to those results.
		Long-Term Stock Incentives Page 41		●Annual awards of stock-based compensation are typically in the form of stock options and performance shares. Because our performance shares only vest if specified core return on equity thresholds are met, and because stock options provide value only if our stock price appreciates, the Compensation Committee believes that such compensation is all performance-based. ●The mix of long-term incentives for the CEO and other named executive officers is approximately 60% performance shares and 40% stock options, based on the grant date fair value of the awards.

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Proxy Statement Summary

The Compensation Committee has adopted the following practices, among others:

Item 4

Amendment to The Travelers Companies, Inc. Amended and Restated 2014 Stock Incentive Plan

Your Board recommends a vote FOR this Item.

See page 67

Item 5

Shareholder Proposal Relating to a Diversity Report, Including EEOC Data

Your Board recommends a vote AGAINST this Item.

See page 76

2019 Proxy Statement  |  The Travelers Companies, Inc.

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Corporate Governance  |  Item 1 and Nominees for Election of Directors

Corporate Governance

Item 1

Election of Directors

There are currently 12 members of the Board of Directors (the “Board”). On February 6, 2019, the Board, upon recommendation of its Nominating and Governance Committee, unanimously nominated the 10 directors listed below for re-election to the Board at the Annual Meeting. Current directors, Mr. John Dasburg and Mr. Kenneth Duberstein, will retire from the Board effective as of the Annual Meeting pursuant to our director retirement policy and will not stand for re-election. Mr. Dasburg’s quarter century of service on the Board included his extraordinary stewardship as the Company’s Lead Director for 12 years and his expert direction as Chair of the Audit Committee for 13 years. Mr. Duberstein’s 21 years of service included his service on four Board committees and a decade of exceptional leadership as Chair of the Nominating and Governance Committee. The Board is grateful to Mr. Dasburg and Mr. Duberstein for all they have done for our Company, our shareholders and our employees.

The directors elected at the Annual Meeting will hold office until the 2020 annual meeting of shareholders and until their successors are duly elected and qualified. Unless otherwise instructed, the persons (the “proxyholders”) named in the form of proxy card attached to this Proxy Statement, as filed with the Securities and Exchange Commission (“SEC”), intend to vote the proxies held by them for the election of the 10 nominees named below. The proxies cannot be voted for more than 10 candidates for director. The Board knows of no reason why these nominees would be unable or unwilling to serve, but if that would be the case, proxies received will be voted for the election of such other persons, if any, as the Board may designate.

Your Board recommends you vote FOR the election of all director nominees.

Nominees for Election of Directors

Director since 2007 Committees: Audit Risk

Alan L. Beller Background Mr. Beller, 69, is Senior Counsel of the law firm of Cleary Gottlieb Steen & Hamilton LLP (“Cleary”), based in the New York City office. Mr. Beller joined Cleary in 1976 and was a partner in the firm from 1984 through 2001. From 2002 to 2006, he served as the Director of the Division of Corporation Finance of the SEC and as Senior Counselor to the SEC. He returned to Cleary in August 2006 and was a partner in the firm until 2014 when he became Senior Counsel. Other Board Service Mr. Beller is a member of the Board of Trustees of the IFRS Foundation and the Board of Directors of the Sustainability Accounting Standards Board (“SASB”) Foundation. Nomination Considerations The Board and the Nominating and Governance Committee considered in particular Mr. Beller’s senior-level public service and his significant experience and expertise in the areas of law, risk management oversight and corporate governance. In addition, the Committee considered Mr. Beller’s significant experience and expertise with respect to financial reporting, financial accounting, auditing and audit committee matters and their regulation and his increased expertise in the area of sustainability governance and disclosure.

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Corporate Governance  |  Item 1 and Nominees for Election of Directors

Director since 2001 Committees: Compensation Executive Investment and Capital Markets Nominating and Governance

Janet M. Dolan Background Ms. Dolan, age 69, has been President of Act 3 Enterprises, LLC, a consulting services company, since August 2006. She served as President and Chief Executive Officer of Tennant Company, a manufacturer of nonresidential floor maintenance equipment and products, from April 1999 until her retirement in December 2005, and she had served in a number of senior executive positions with Tennant Company from 1986 until April 1999. Prior to joining Tennant Company, Ms. Dolan was a director of the Minnesota Lawyers’ Professional Responsibility Board. Other Board Service Ms. Dolan was a director of Wenger Corporation until December 2018 and a director of Donaldson Company, Inc. until November 2014. Nomination Considerations The Board and the Nominating and Governance Committee considered in particular Ms. Dolan’s experience as a public company CEO and her significant experience and expertise in management and in legal and compliance matters.

Director since 2007 Committees: Audit Risk

Patricia L. Higgins Background Ms. Higgins, age 69, served as President and Chief Executive Officer of Switch and Data Facilities, Inc., a provider of neutral interconnection and collocation services, from September 2000 until her retirement in February 2004. In 1999 and 2000, Ms. Higgins served as Executive Vice President of the Gartner Group and Chairman and Chief Executive Officer of the Research Board, a segment of the Gartner Group. From 1997 to 1999, she served as Corporate Vice President and Chief Information Officer of Alcoa Inc., and from 1995 to 1997, she served as Vice President and President (Communications Market Business Unit) of Unisys Corporation. From 1977 to 1995, she served in various managerial positions, including as Corporate Vice President and Group Vice President (State of New York) for Verizon (NYNEX) and Vice President, International Sales Operations (Lucent) for AT&T Corporation/Lucent. Other Board Service Ms. Higgins is a director of Barnes & Noble, Inc., Dycom Industries and the Dali Museum and was a director of Internap Corporation until June 2018. Nomination Considerations The Board and the Nominating and Governance Committee considered in particular Ms. Higgins’ experience as a public company Chief Information Officer and her significant experience and expertise in management, as well as information technology strategy and operations.

Director since 2012 Committees: Audit Executive Risk

William J. Kane Background Mr. Kane, age 68, served as an audit partner with Ernst & Young for 25 years until his retirement in 2010, during which time he specialized in providing accounting, auditing and consulting services to the insurance and financial services industries. Prior to that he served in various auditing roles with Ernst & Young. Other Board Service Mr. Kane is a director of Transamerica Corporation. Nomination Considerations The Board and the Nominating and Governance Committee considered in particular Mr. Kane’s experience as an audit partner of a registered public accounting firm and his significant experience and expertise in financial controls, financial reporting, management and the insurance industry.

2019 Proxy Statement  |  The Travelers Companies, Inc.

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Corporate Governance  |  Item 1 and Nominees for Election of Directors

Director since 2017 Committees: Compensation Investment and Capital Markets Nominating and Governance

Clarence Otis Jr. Background Mr. Otis, age 62, served as Chairman and Chief Executive Officer of Darden Restaurants, Inc., the largest company-owned and operated full-service restaurant company in the world. He became Darden’s Chief Executive Officer in 2004, assumed the additional role of Chairman in 2005 and served in both capacities until his retirement in 2014. Mr. Otis joined Darden Restaurants, Inc. in 1995 and served in various roles with Darden, including Vice President and Treasurer, and Senior Vice President and Chief Financial Officer. Other Board Service Mr. Otis is a director of Verizon Communications, Inc., VF Corporation and MFS Mutual Funds and was a Class B director of the Federal Reserve Bank of Atlanta until December 2015. Nomination Considerations The Board and the Nominating and Governance Committee considered in particular Mr. Otis’s experience as a public company CEO and his significant experience and expertise in operations, financial oversight and risk management.

Director since 2014 Committees: Compensation Investment and Capital Markets Nominating and Governance

Philip T. (Pete) Ruegger III Background Mr. Ruegger, age 69, served as Chairman of the Executive Committee of the law firm Simpson Thacher & Bartlett LLP from 2004 until his retirement in 2013. He was a member of the firm’s executive committee from 1993 through June 2013. Mr. Ruegger joined Simpson Thacher & Bartlett LLP in 1974 and became a partner in 1981. At Simpson Thacher & Bartlett LLP, he advised clients on mergers and acquisitions, corporate governance, investigations, corporate finance and general corporate and securities law matters. Other Board Service Mr. Ruegger is Chairman of the Executive Committee of the Henry Street Settlement, a New York City based not-for-profit. Nomination Considerations The Board and the Nominating and Governance Committee considered in particular Mr. Ruegger’s experience as the leader of a large international corporate law firm and his significant experience and expertise in mergers and acquisitions and other corporate transactional matters, as well as risk management.

Director since 2016 Committees: Audit Executive Risk

Todd C. Schermerhorn Background Mr. Schermerhorn, age 58, served as Senior Vice President and Chief Financial Officer of C. R. Bard, Inc., a multinational developer, manufacturer and marketer of life-enhancing medical technologies, from 2003 until his retirement in 2012. Prior to that, he had been Vice President and Treasurer of C. R. Bard from 1998 to 2003. From 1985 to 1998, Mr. Schermerhorn held various other management positions with C. R. Bard. Other Board Service Mr. Schermerhorn was a director of The Spectranetics Corporation until August 2017 and was a director of Thoratec Corporation until October 2015. Nomination Considerations The Board and the Nominating and Governance Committee considered in particular Mr. Schermerhorn’s experience as a public company Chief Financial Officer and his significant experience and expertise in management, accounting and business operations, including international operations.

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The Travelers Companies, Inc.  |  2019 Proxy Statement

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Corporate Governance  |  Item 1 and Nominees for Election of Directors

Director since 2015 Committees: Executive

Alan D. Schnitzer Background Mr. Schnitzer, age 53, is Chairman and Chief Executive Officer of Travelers. He was previously the Company’s Vice Chairman and Chief Executive Officer, Business and International Insurance from July 2014 to December 2015. He was Vice Chairman—Financial, Professional and International Insurance and Field Management; Chief Legal Officer from May 2012 until July 2014. Prior to that, he was Vice Chairman and Chief Legal Officer since joining the Company in April 2007 and Executive Vice President—Financial, Professional and International Insurance since May 2008. Prior to joining the Company, he was a partner at Simpson Thacher & Bartlett LLP. Other Board Service Mr. Schnitzer serves as a trustee of the University of Pennsylvania and as a director of Memorial Sloan Kettering Cancer Center, New York City Ballet and the Connecticut Council for Education Reform. Nomination Considerations The Board and the Nominating and Governance Committee considered in particular Mr. Schnitzer’s position as Chairman and CEO of the Company and his significant experience in the management of the Company in various roles, including as Chief Executive Officer of Business and International Insurance, the Company’s largest business segment, as well as his significant experience and expertise in management, finance and law.

Director since 2009 Committees: Compensation Executive Investment and Capital Markets Nominating and Governance

Donald J. Shepard Background Mr. Shepard, age 72, served as Chairman of the Executive Board and Chief Executive Officer of AEGON N.V., an international life insurance and pension company, from April 2002 until his retirement in April 2008. Prior to that, he served as Chief Executive Officer of AEGON USA since 1989, and in 1992, he became a member of the Executive Board of AEGON N.V. Other Board Service Mr. Shepard is a director of PNC Financial Services Group, Inc. and was a director of CSX Corporation until June 2017. Nomination Considerations The Board and the Nominating and Governance Committee considered in particular Mr. Shepard’s experience as a public insurance company CEO and his significant experience and expertise in management and international business.

Director since 2004 Committees: Audit Risk

Laurie J. Thomsen Background Ms. Thomsen, age 61, served as an Executive Partner of New Profit, Inc., a venture philanthropy firm, from 2006 to 2010, and she served on its board from 2001 to 2006. Prior to that, from 1995 to 2004, she was a co-founder, General Partner and Retiring General Partner of Prism Venture Partners, a venture capital firm investing in healthcare and technology companies. From 1984 until 1995, she worked at the venture capital firm Harbourvest Partners in Boston, where she was a General Partner from 1988 until 1995. Ms. Thomsen was in commercial lending at U.S. Trust Company of New York from 1979 until 1984. Other Board Service Ms. Thomsen is a director of Dycom Industries and MFS Mutual Funds and an emeritus Trustee of Williams College. Nomination Considerations The Board and the Nominating and Governance Committee considered in particular Ms. Thomsen’s experience as a general partner of a venture capital firm and her significant experience and expertise in investments, finance and the development of emerging businesses.

2019 Proxy Statement  |  The Travelers Companies, Inc.

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Corporate Governance  |  Governance of Your Company

Governance of Your Company

Governance Highlights

Our commitment to good corporate governance is reflected in our Governance Guidelines, which describe the Board’s views on a wide range of governance topics. These Governance Guidelines are reviewed annually by the Nominating and Governance Committee, and any changes deemed appropriate by the Committee in light of emerging practices or otherwise are submitted to the full Board for consideration. Our Governance Guidelines can be found on the Corporate Governance page of the “For Investors” section on our website at www.travelers.com.

Board Composition and Accountability

Independence		All of our director nominees other than our Chairman and CEO are independent.
Committee independence		All committees are comprised of independent directors other than the Executive Committee on which our Chairman and CEO serves.
Independent Chair or independent Lead Director		The Board has an independent Chair or independent Lead Director whenever the Chair is a member of management or not otherwise independent.
Executive session		Independent members of the Board and each of the committees regularly meet in executive session with no member of management present.
Risk oversight		The Board and committees annually review their oversight of risk and the allocation of risk oversight among the committees.
Director education		The Nominating and Governance Committee oversees educational sessions for directors on matters relevant to the Company, its business plan and risk profile.
Board evaluation		The Board and each of its committees evaluate and discuss its respective performance and effectiveness every year.
Diversity of skills and experience		The composition of the Board encompasses a broad range of skills, expertise, industry knowledge and diversity.
Board tenure		The Board’s balanced approach to refreshment results in an appropriate mix of long-serving and new directors.

Shareholder Rights

Annually elected directors		The annual election of directors reinforces the Board’s accountability to shareholders.
Majority voting standard for director elections		Directors must be elected under a “majority voting” standard in uncontested elections — a director who receives fewer votes “For” his or her election than “Against” must promptly tender his or her resignation to the Board.
Single voting class		Our common stock is the only class of shares outstanding.
Proxy access		Each shareholder, or a group of up to 20 shareholders, owning 3% or more of our common stock continuously for at least three years may, in accordance with the terms specified in our bylaws, nominate and include in our proxy materials director nominees constituting the greater of two directors or 20% of the Board.
Poison pill		The Company does not have a poison pill.

Board Compensation

Director stock ownership		Non-employee directors are required to accumulate and retain a level of ownership of our equity securities to align the interests of the non-employee directors and the shareholders.
Deferred stock units		Non-employee directors currently receive over 50% of their annual compensation under the Director Compensation Program in the form of deferred stock units, and the shares underlying these units are not distributed to a director until at least six months after the director leaves the Board.
Compensation review		The Nominating and Governance Committee reviews the appropriateness of the Director Compensation Program at least once every two years.

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The Travelers Companies, Inc.  |  2019 Proxy Statement

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Corporate Governance  |  Governance of Your Company

Governance Structure of the Board – Chairman and Lead Director

Our bylaws provide that the Board, at its regular meeting each year immediately following the annual shareholders meeting, shall elect a Chairman of the Board. The Board maintains the flexibility to determine whether the roles of Chairman and Chief Executive Officer (“CEO”) should be combined or separated, based on what it believes is in the best interests of the Company at a given point in time. The Board believes that this flexibility is in the best interest of the Company and that a one-size-fits-all approach to corporate governance, with a mandated independent Chairman, would not result in better governance or oversight. Our Governance Guidelines provide for the position of Lead Director whenever the Chairman of the Board is a director who does not qualify as an independent director.

Our Current Board Leadership Structure

The Board believes that its current leadership structure is appropriate for the Company at this time. The Board believes that the responsibilities of the Lead Director help to assure appropriate oversight of the Company’s management by the Board and optimal functioning of the Board. The effectiveness of the Lead Director is enhanced by the Board’s independent character. In addition, as described in more detail under “Nominees for Election of Directors—Nomination Considerations”, the Lead Director and the independent directors have substantial experience with public company management and governance, in general, and the Company, in particular. This structure facilitates the continued strong communication and coordination between management and the Board and enables the Board to fulfill its risk oversight responsibilities. A complete description of the role of the independent Lead Director is set forth in our Governance Guidelines.

2019 Proxy Statement  |  The Travelers Companies, Inc.

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Corporate Governance  |  Governance of Your Company

Committees of the Board and Meetings

There are six standing committees of the Board: the Audit Committee; the Compensation Committee; the Executive Committee; the Investment and Capital Markets Committee; the Nominating and Governance Committee; and the Risk Committee.

The Board has adopted a written charter for each of these committees, copies of which are posted on our website at www.travelers.com under “For Investors: Corporate Governance: Charter Documents”. Each committee reviews its charter annually and, when appropriate, presents to the Nominating and Governance Committee and the Board any recommended amendments for consideration and approval.

Non-employee members of the Board regularly meet in executive session with no members of management present. Executive sessions are chaired by the independent Lead Director. Each of the committees also meets regularly in executive session.

The following table summarizes the current membership of the standing committees of the Board, as well as the number of times each committee met during 2018.

Director	Audit	Compensation	Executive	Investment and Capital Markets	Nominating and Governance	Risk
Mr. Beller
Mr. Dasburg
Ms. Dolan
Mr. Duberstein
Ms. Higgins
Mr. Kane
Mr. Otis
Mr. Ruegger
Mr. Schermerhorn
Mr. Schnitzer
Mr. Shepard
Ms. Thomsen
Meetings in 2018	9	5	-	4	5	4

Member

Chair

The Board held five meetings in 2018. Directors are encouraged and expected, but not required, to attend each annual meeting of shareholders.

●	Each of the directors is independent, other than Mr. Schnitzer, who currently serves as our Chairman and Chief Executive Officer.
●	Each committee of the Board, other than the Executive Committee on which Mr. Schnitzer serves, is composed solely of independent directors.

With respect to attendance:

●	Each director attended 75% or more of the total number of meetings of the Board and of the committees on which each such director served during 2018.
●	All of the directors serving at the time of last year’s annual meeting, other than Mr. Killingsworth, who retired effective at such meeting, attended last year’s annual meeting of shareholders.

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Audit Committee

All members of the Audit Committee are “independent”, consistent with our Governance Guidelines, the New York Stock Exchange (“NYSE”) listing standards and SEC rules applicable to boards of directors in general and audit committees in particular. In addition, the Board has determined that all members of the Audit Committee meet the financial literacy requirements of the NYSE. The Board also has determined that Mr. Kane’s extensive experience as an audit partner with Ernst & Young for 25 years qualifies him as an audit committee financial expert. In addition, the Board designated Mr. Dasburg as an audit committee financial expert after considering his experience with Marwick from 1973 to 1980, his service as a KPMG Tax Partner from 1978 to 1980, his experience as Chief Financial Officer of Marriott Corporation, Chief Executive Officer of Northwest Airlines, Burger King Corporation and ASTAR and his service on the audit committees of other public companies. The Board also designated Mr. Schermerhorn as an audit committee financial expert after considering his experience as Senior Vice President and Chief Financial Officer with C. R. Bard, Inc. from 2003 to 2012, his service as Vice President and Treasurer of C. R. Bard, Inc. from 1998 to 2003 and his service on the audit committees of other public companies. In addition, the Board designated Ms. Higgins as an audit committee financial expert after considering her experience as Chief Executive Officer of Switch and Data Facilities, Inc., during which she supervised its principal financial officer, and her experience serving as an audit committee financial expert of other public companies.

The duties and responsibilities of the Audit Committee include the following:

●	assist the Board in exercising its oversight of the Company’s accounting and financial reporting process and audits of the Company’s financial statements;
●	appoint our independent registered public accounting firm and review its qualifications, performance and independence;
●	review and pre-approve the audit and permitted non-audit services and proposed fees of the independent registered public accounting firm;
●	review the adequacy of the work performed by our internal audit group;
●	review reports from management, the internal auditors and the independent registered public accounting firm with respect to the adequacy of the Company’s internal controls; and
●	oversee the Company’s compliance with legal and regulatory requirements.

With respect to reporting and disclosure matters, the duties and responsibilities of the Audit Committee include reviewing our audited financial statements and recommending to the Board that they be included in our Annual Report on Form 10-K in accordance with applicable rules and regulations of the SEC.

Compensation Committee

All members of the Compensation Committee are “independent” consistent with our Governance Guidelines, the NYSE listing standards and SEC rules applicable to boards of directors in general and compensation committee members in particular. In addition, all members of the Compensation Committee qualify as “non-employee directors” for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as “outside directors” for purposes of Section 162(m) (“Section 162(m)”) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). With respect to general compensation matters, the duties and responsibilities of the Compensation Committee include the following:

●	review and approve the performance goals and individual objectives for our CEO and those members of our Management Committee who are executive officers or report directly to the CEO (together with the CEO, the “Committee Approved Officers”);
●	review the performance and approve the salaries and incentive compensation of the Committee Approved Officers;
●	review and approve policies with respect to perquisites of the CEO and other members of management;
●	approve and monitor compliance with stock ownership guidelines applicable to the CEO and other members of management;
●	review and approve our compensation philosophy and objectives and recommend to the Board for approval compensation and benefit programs determined by the Compensation Committee to be appropriate;
●	review the operation of our overall compensation program to evaluate its objectives and its execution and recommend to the Board steps to modify our compensation programs to better conform them with the established compensation objectives;
●	review and approve any new equity compensation plans and material amendments to existing plans where shareholder approval has not been obtained and oversee management’s administration of such plans;
●	review our regulatory compliance with respect to compensation matters;
●	review and approve any severance or similar termination payments proposed to be made to any current or former executive officer;
●	review and approve all stock option, restricted stock, restricted stock unit, performance share and similar stock-based grants;

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●	conduct an independence assessment prior to selecting any compensation consultant, legal counsel or other adviser that will provide advice to the Compensation Committee; and
●	evaluate, at least annually, whether any work provided by the Compensation Committee’s compensation consultant raised any conflict of interest.

With respect to reporting and disclosure matters, the duties and responsibilities of the Compensation Committee include reviewing and discussing the “Compensation Discussion and Analysis” with management and recommending to the Board that it be included in our annual proxy statement and Annual Report on Form 10-K in accordance with applicable rules and regulations of the SEC. The Compensation Committee may, in its discretion, delegate any of its duties and responsibilities to a subcommittee of the Compensation Committee.

Establishment of Annual Bonus and Equity Award Pools

The Compensation Committee approves the individual salary, annual bonus and equity awards for the Committee Approved Officers. In addition, the Compensation Committee approves the aggregate annual bonuses and equity awards to employees who are not Committee Approved Officers.

The Compensation Committee considered recommendations from the CEO regarding compensation for each of the executive officers named in the “Summary Compensation Table” on page 52 and other officers.

Delegation of Authority for “Off-Cycle” Equity Grants

The Compensation Committee has delegated limited authority to the CEO to make equity grants outside of the annual equity grant process, or “off-cycle grants”, to employees and new hires who are not Committee Approved Officers. The delegation is subject to maximum grant date values of equity that can be granted to any one person. These grants can only be made on the grant dates established by our Governance Guidelines for “off-cycle” equity awards. Any grants made “off-cycle” are reported to the Compensation Committee at the next regularly scheduled quarterly meeting following such awards.

Compensation Consultant

The Compensation Committee has the authority under its charter to retain outside consultants or advisors, as it deems necessary or advisable. In accordance with this authority, the Compensation Committee has engaged Frederic W. Cook & Co. (“FW Cook”) as its independent outside compensation consultant to provide it with objective and expert analyses, advice and information with respect to executive compensation. All executive compensation services provided by FW Cook are conducted under the direction or authority of the Compensation Committee and all work performed by FW Cook must be pre-approved by the Compensation Committee or the Chair of the Compensation Committee. Neither FW Cook nor any of its affiliates maintains any other direct or indirect business relationships with the Company or any of its affiliates, other than advising the Nominating and Governance Committee with respect to director compensation. In November 2018, the Compensation Committee evaluated whether any work provided by its Compensation Committee consultant raised any conflict of interest and determined that it did not.

As requested by the Compensation Committee, FW Cook’s services to the Compensation Committee in 2018 included, among other things:

●	advising with respect to the Compensation Committee meeting materials;
●	evaluating potential changes to incentive plans;
●	advising with respect to individual compensation for the Committee Approved Officers;
●	reviewing and discussing possible aggregate levels of corporate-wide bonus payments and equity awards;
●	preparing comparative analyses of executive compensation levels and design at peer group companies;
●	advising as to how actions taken by the Compensation Committee compare to the pay and performance of our peer group companies; and
●	advising in connection with the preparation of certain of the information included in the proxy statement.

An FW Cook representative participated in each of the five Compensation Committee meetings in 2018.

In addition to the independent outside compensation consultant discussed above, our corporate staff (including Finance, Human Resources and Legal staff members) supports the Compensation Committee in its work. Other than with respect to the CEO’s recommendations regarding compensation to be paid to executive officers, no executive officer determines or recommends to the Compensation Committee the amount or form of executive compensation to be paid to an executive officer.

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The Board has granted to the Executive Committee, subject to certain limitations set forth in its charter, the broad responsibility of exercising the authority of the Board in the oversight of our business during the intervals between Board meetings in order to provide a degree of flexibility and ability to respond to time-sensitive business and legal matters. The Executive Committee meets only as necessary.

Investment and Capital Markets Committee

All members of the Investment and Capital Markets Committee are independent consistent with our Governance Guidelines. The Investment and Capital Markets Committee assists the Board in exercising its oversight of the Company’s management of its investment portfolios (including credit risk monitoring) and certain financial affairs of the Company (including capital management, such as dividend policy and actions, stock splits, repurchases of stock or other securities, financing arrangements, debt and equity financing and liquidity).

The Investment and Capital Markets Committee also reviews and either approves or recommends appropriate Board action with respect to, among other matters, the issuance of securities, the establishment of bank lines of credit and certain purchases and dispositions of real property, capital expenditure budgets and acquisitions and divestitures of assets.

Nominating and Governance Committee

All members of the Nominating and Governance Committee are “independent” consistent with our Governance Guidelines, the NYSE listing standards and SEC rules applicable to board of directors in general. The duties and responsibilities of the Nominating and Governance Committee include the following:

●	establish criteria for the selection of candidates to serve on the Board;
●	identify and recommend director candidates for election or re-election to the Board;
●	identify and recommend directors for appointment to serve on the committees of the Board and as chair of such committees;
●	recommend adjustments, from time to time, to the size of the Board or of any Board committee;
●	establish procedures for the annual evaluation of Board and director performance;
●	oversee continuing education of directors in light of the Governance Guidelines;
●	review the director compensation program and policies and recommend changes to the Board;
●	establish and review our Governance Guidelines;
●	review the Code of Business Conduct and Ethics (the “Code of Conduct”) applicable to directors and employees and recommend changes to the Board when appropriate;
●	develop and recommend to the Board standards for determining the independence of directors and the absence of material relationships between the Company and a director;
●	review succession plans for our CEO and the direct reports to the CEO;
●	review and approve or ratify all related person transactions under our Related Person Transaction Policy;
●	review the Company’s public policy initiatives;
●	review and discuss with the Company’s head of Government Relations the Company’s participation in the political process, including political contributions and lobbying expenditures;
●	review and discuss with the Company’s senior management the Company’s strategies and initiatives relating to diversity and inclusion;
●	review the Company’s strategies and initiatives relating to community relations and charitable giving; and
●	recommend to the Board any guidelines for the removal of directors, as it determines appropriate.

Risk Committee

All members of the Risk Committee are independent consistent with our Governance Guidelines. The Risk Committee assists the Board in exercising its oversight of the Company’s operational activities and the identification and review of those risks that could have a material impact on us. The duties and responsibilities of the Risk Committee include oversight of management’s risk management activities in the following areas:

●	our enterprise risk management program;
●	the underwriting of insurance;
●	the settlement of claims;
●	the management of catastrophe exposure;
●	the retention of insured risk and appropriate levels and types of reinsurance;
●	the credit risk in our insurance operations and ceded reinsurance program;
●	our information technology operations, including cyber risk and information security; and
●	the business continuity and executive crisis management for the Company and its business operations.

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Board and Committee Evaluations

Every year, the Board and each of its committees evaluate and discuss their respective performance and effectiveness, as required by the Governance Guidelines. These evaluations cover a wide range of topics, including, but not limited to, the fulfillment of the Board and committee responsibilities identified in the Governance Guidelines and committee charters. The evaluations address the Board’s knowledge and understanding of, and performance with respect to, the Company’s business, strategy, values and mission, the appropriateness of the Board’s structure and composition, the communication among the directors and between the Board and management and the Board’s meeting process. Each committee reviews, among other topics, how the committee has satisfied the responsibilities contained in its charter in the past year as well as the organization of the committee, the committee meeting process and the committee’s oversight. Each committee reports the results of its evaluation to the Board.

Director Nominations

Process and Criteria Generally

Pursuant to our Governance Guidelines, the Nominating and Governance Committee is responsible for recommending to the Board nominees for election as director, and the Board is responsible for selecting nominees for election.

As required by our Governance Guidelines, the Board, based on the Nominating and Governance Committee’s recommendation, selects nominees after considering the following criteria:

●	personal qualities and characteristics, accomplishments and reputation in the business community;
●	current knowledge and contacts in the communities in which the Company does business and in the Company’s industry or other industries relevant to the Company’s business;
●	ability and willingness to commit adequate time to Board and committee matters;
●	the fit of the individual’s skill and personality with those of other directors and potential directors in building a Board that is effective, collegial and responsive to the needs of the Company; and
●	diversity of viewpoints, background, experience and other demographics.

The evaluation of these criteria involves the exercise of careful business judgment. Accordingly, although the Nominating and Governance Committee and the Board at a minimum assess each candidate’s ability to satisfy any applicable legal requirements or listing standards, his or her strength of character, judgment, working style, specific areas of expertise and his or her ability and willingness to commit adequate time to Board and committee matters. The Nominating and Governance Committee and the Board do not have specific minimum qualifications that are applicable to all director candidates. The Board seeks to ensure that the Board is composed of members whose particular expertise, qualifications, attributes and skills, when taken together, allow the Board to satisfy its oversight responsibilities effectively.

Director Search

In identifying prospective director candidates for the Board, the Nominating and Governance Committee may seek referrals from other members of the Board, management, shareholders and other sources. The Nominating and Governance Committee also may, but need not, retain a professional search firm in order to assist it in these efforts. The Nominating and Governance Committee and the Board utilize the same criteria for evaluating candidates regardless of the source of the referral.

Diversity

As mentioned above, the Nominating and Governance Committee and the Board include diversity of “viewpoints, background, experience and other demographics” as one of several criteria that they consider in connection with selecting candidates for the Board. While neither the Board nor the Nominating and Governance Committee has a formal diversity policy, one of many factors that the Board and the Nominating and Governance Committee carefully consider is the importance to the Company of racial and gender diversity in board composition. Moreover, when considering director candidates, the Nominating and Governance Committee and the Board seek individuals with

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backgrounds and qualities that, when combined with those of our incumbent directors, enhance the Board’s effectiveness and, as required by the Governance Guidelines, result in the Board having “a broad range of skills, expertise, industry knowledge, diversity of opinion and contacts relevant to the Company’s business”. As part of its annual self-evaluation, the Board assesses and confirms compliance with this Governance Guideline.

Shareholder Recommendations

The Nominating and Governance Committee will consider director candidates recommended by shareholders. Shareholders wishing to propose a candidate for consideration may do so by submitting the proposed candidate’s full name and address, resume and biographical information to the attention of the Corporate Secretary, The Travelers Companies, Inc., 485 Lexington Avenue, New York, New York 10017. All recommendations for nomination received by the Corporate Secretary that satisfy our bylaw requirements relating to such director nominations will be presented to the Nominating and Governance Committee for its consideration.

Proxy Access

Our bylaws permit a shareholder, or a group of up to 20 shareholders, that has continuously owned for three years at least 3% of the Company’s outstanding common shares, to nominate and include in the Company’s annual meeting proxy materials up to the greater of two directors or 20% of the number of directors serving on the Board, provided that the shareholder(s) and the nominee(s) satisfy the requirements specified in our bylaws, which are posted on our website at www.travelers.com. Shareholder requests to include shareholder-nominated directors in the Company’s proxy materials for the 2020 annual meeting of shareholders must be received by the Company no earlier than November 7, 2019 and no later than December 7, 2019.

Specific Considerations Regarding 2019 Nominees

Overview

In considering the 10 director nominees named in this Proxy Statement and proposed for election by you at the Annual Meeting, the Nominating and Governance Committee and the Board evaluated and considered, among other factors:

●	each nominee’s experiences, qualifications, attributes and skills, in light of the Governance Guidelines’ criteria for nomination discussed on page 14, including the specific skills identified by the Board as relevant to the Company;
●	the contributions of those directors recommended for re-election in the context of the Board self-evaluation process and other needs of the Board;
●	the tenure of individual directors;
●	the mix of long-serving and new directors on the Board;
●	the specific needs of the Company given its business and industry; and
●	the diversity of viewpoints, background, experience and other demographics of the director nominees.

Individual and Overall Tenure

With respect to the individual and overall tenure of Board members, the Board and the Nominating and Governance Committee believe that the Company’s industry is one where a long-term perspective is critical and a historical perspective on risk is important, and, accordingly, the Company benefits from having longstanding directors serve on the Board, including in leadership positions. At the same time, the Board and Nominating and Governance Committee also believe that incorporating new perspectives on the Board through regular refreshment is important to maintaining the right mix and diversity of viewpoints on the Board.

In considering the 10 director nominees named in this Proxy Statement, the Nominating and Governance Committee and the Board considered the mix of tenure of the director nominees. As illustrated below, there is a balance of tenure among the independent director nominees.

NOMINEE TENURE

 

In light of the foregoing, the Board and the Nominating and Governance Committee concluded that there was an appropriate mix of long-serving and new directors.

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Background and Experiences

The Board and the Nominating and Governance Committee, in considering each nominee, principally focused on the background and experiences of the nominee, as described in the biographies beginning on page 4. The Board and the Nominating and Governance Committee considered that each nominee has experience serving in senior positions with significant responsibility, where each has gained valuable expertise in a number of areas relevant to the Company and its business. The Board and the Nominating and Governance Committee also considered that a number of directors have gained valuable experience and skills through serving as a director of other public and private companies.

Director Age Limit

The Governance Guidelines provide that no person who will have reached the age of 74 on or before the date of the next annual shareholders meeting will be nominated for election at that meeting without an express waiver by the Board.

The Board believes that waivers of this policy should not be automatic and should be based upon the needs of the Company and the individual attributes of the director.

Director Independence and Independence Determinations

Under our Governance Guidelines and NYSE rules, a director is not independent unless the Board affirmatively determines that he or she does not have a direct or indirect material relationship with the Company. In addition, the director must meet the bright-line test for independence set forth by the NYSE rules.

The Board has established categorical standards of director independence to assist it in making independence determinations. These standards, which are included in our Governance Guidelines, set forth certain relationships between the Company and the directors and their immediate family members, or entities with which they are affiliated, that the Board, in its judgment, has determined to be material or immaterial in assessing a director’s independence. The Nominating and Governance Committee annually reviews the independence of all directors and reports its determinations to the full Board.

In the event a director has a relationship with the Company that is relevant to his or her independence and is not addressed by the categorical independence standards, the independent members of the Board determine in their judgment whether such relationship is material.

Our Governance Guidelines require that:

●	all members of the Audit Committee, the Compensation Committee and the Nominating and Governance Committee be independent; and
●	no more than two members of the Board may concurrently serve as officers of the Company.

The Board has determined that all of its current directors are independent, other than our Chairman and Chief Executive Officer, Mr. Alan Schnitzer. Consequently, assuming election of all the nominees included in this Proxy Statement, 90% of the directors on the Board will be independent. The Board had also determined that Mr. Killingsworth, who served as a director until the 2018 annual shareholders meeting, was independent.

In making its independence determinations, the Board considered and reviewed the various commercial, charitable and employment transactions and relationships known to the Board (including those identified through annual directors’ questionnaires) that exist between us and our subsidiaries and the entities with which certain of our directors or members of their immediate families are, or have been, affiliated. Specifically, the Board’s independence determinations included reviewing membership dues, contributions and research fees paid to a trade association and affiliated entities where Mr. Donald Shepard served as a director in 2018 (but not as an executive officer or employee). Payments to the organization constituted less than 1% of such organization’s consolidated gross revenues during its last completed fiscal year and were below the thresholds set forth under our categorical standards of director independence.

The Board determined that the transactions identified were not material and did not affect the independence of such director under either the Company’s Governance Guidelines or the applicable NYSE rules.

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Board’s Role in Risk Management

Enterprise Risk Management

Enterprise Risk Management (“ERM”) is a Company-wide initiative that involves the identification and assessment of a broad range of risks that could affect our ability to fulfill our business objectives or execute our corporate strategy and the development of plans to mitigate their effects. Our ERM is overseen by our Board of Directors. The Risk Committee and the other committees of the Board, as well as our separate management-level enterprise risk and underwriting risk committees, are key elements of our ERM structure and help to establish and reinforce our strong culture of risk management. For example, having both a Board Risk Committee that oversees operational risks and the Company’s ERM activities, and a management-level enterprise risk committee that reports regularly to the Board Risk Committee, enables a high degree of coordination between management and the Board.

We describe our ERM function in more detail in our Annual Report on Form 10-K, under “Business—Enterprise Risk Management”. We also discuss the alignment of our executive compensation with our risk management below under “Risk Management and Compensation”.

Oversight of Corporate Strategy and Sustainability and Allocation of Risk Oversight

The Board works with management to set the short-term and long-term strategic objectives of the Company and to monitor progress on those objectives. In setting and monitoring strategy, the Board, along with management, considers the risks and opportunities that impact the long-term sustainability of the Company’s business model and whether the strategy is consistent with the Company’s risk appetite. The Board regularly reviews the Company’s progress with respect to its strategic goals, the risks that could impact the long-term sustainability of our business and the related opportunities that could enhance the Company’s long-term sustainability. The Board oversees these efforts in part through its various committees based on each Committee’s responsibilities and expertise.

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As a result, each committee charter contains specific risk oversight functions delegated by the Board, consistent with the principles set forth above. In that way, monitoring of strategic objectives, risk oversight responsibilities and oversight of the Company’s sustainability more generally are shared by all committees of the Board. Further, we believe that allocating responsibility to a committee with relevant knowledge and experience improves the oversight of risks and opportunities.

The allocation of risk oversight responsibility may change, from time to time, based on the evolving needs of the Company. On at least an annual basis, the Board reviews significant risks that management, through its ERM efforts, has identified. The Board then evaluates, and may change, the allocation among the various committees of oversight responsibility for each identified risk. Further, each committee periodically reports to the Board on its risk oversight activities. In addition, at least annually, the Company’s Chief Risk Officer conducts a review of the interrelationships of risks and reports the results to the Risk Committee and the Board. These reports and reviews are intended to inform the Board’s annual evaluation of the allocation of risk oversight responsibility.

Risk Management and Compensation

Our compensation structure is intended to encourage a careful balance of risk and reward, both on an individual risk basis and in the aggregate on a Company-wide basis, and promote a long-term perspective.

As discussed in more detail under “Compensation Discussion and Analysis” in this Proxy Statement, consistent with our goal of achieving a core return on equity in the mid-teens over time, the Compensation Committee selected adjusted core return on equity as the quantitative performance measure for the performance share portion of our stock-based long-term incentive program and as a material factor, although not the only factor, in determining amounts paid under our annual cash bonus program. Because core return on equity is a function of both core income and shareholders’ equity, it encourages senior executives, as well as other employees with management responsibility, to focus on a variety of performance objectives that are important for creating shareholder value, including the quality and profitability of our underwriting and investing activities and capital management.

In addition, the long-term nature of our stock-based incentive awards (which generally do not vest until three years after the award is granted), our significant executive stock ownership requirements and the fact that more than 40% of our named executive officers’ total direct compensation in the aggregate was in the form of stock-based long-term incentives for each of the last five years, including 2018, all encourage prudent enterprise risk management and discourage excessive risk taking to achieve short-term gains.

Moreover, neither the long-term incentive awards nor annual cash bonuses require growth in revenues or earnings in order for our executives to be rewarded, and none of our executives are paid based on a formulaic percentage of revenues or profits. As a result of this and the mix of short- and long-term performance criteria across our compensation programs, among other factors, we believe that our compensation practices and policies are not reasonably likely to have a material adverse effect on the Company.

Furthermore, the Compensation Committee’s independent compensation consultant evaluates and advises the Compensation Committee as to the design and risk implications of our incentive plans and other aspects of our compensation programs to ensure that the mix of compensation, the balance of performance measures and the overall compensation framework all support our short-and long-term objectives.

Dating and Pricing of Equity Grants

The Board has adopted a Governance Guideline establishing fixed grant dates for the grant of equity awards made at times other than at a regularly scheduled meeting of the Compensation Committee, so as to avoid the appearance that equity grant dates have been established with a view to benefiting recipients due to the timing of material public announcements.

In addition, to further ensure the integrity of our equity awards process, the Compensation Committee requires that the exercise price of all stock options granted, and the fair value of all equity awards made, must be determined by reference to the closing price for a share of our common stock on the NYSE on the date of any such grant or award. Under the Company’s stock plans, the Compensation Committee may not take any action with respect to any stock option that would be treated as a “repricing” of such stock option, unless such action is approved by the Company’s shareholders in accordance with applicable rules of the NYSE.

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Code of Business Conduct and Ethics

We maintain a Code of Business Conduct, which is applicable to all of our directors, officers and employees, including our CEO, Chief Financial Officer, Controller and other senior financial officers. The Code of Conduct provides a framework for sound ethical business decisions and sets forth our expectations on a number of topics, including conflicts of interest, compliance with laws, use of our assets and business ethics. The Code of Conduct may be found on our website at www.travelers.com under “For Investors: Corporate Governance: Code of Conduct”. Our Chief Ethics and Compliance Officer is responsible for overseeing compliance with the Code of Conduct as part of fulfilling her responsibility for overseeing our ethics and compliance functions throughout the organization. Our Chief Ethics and Compliance Officer also assists in the communication of the Code of Conduct and oversees employee education regarding its requirements through the use of global, computer-based training, supplemented with focused in-person sessions where appropriate. All employees and directors are required to certify annually that they have reviewed, understand and agree to comply with the contents of the Code of Conduct.

Ethics Helpline

We maintain an Ethics Helpline, which is administered by an independent third party, through which employees can report integrity concerns or seek guidance regarding a policy or procedure. The Ethics Helpline is available seven days a week, 24 hours a day and can be accessed by individuals online or through a toll-free number. In either case, employees can report concerns anonymously. We maintain a formal non-retaliation policy that prohibits retaliation against, or discipline of, an employee who raises an ethical concern in good faith.

Once an Ethics Helpline report is filed, the Ethics and Compliance Office investigates the matter and addresses any ethical or compliance-related issues. Our Chief Ethics and Compliance Officer provides the Audit Committee with quarterly summaries of matters reported through the Ethics Helpline and more frequent compliance updates as appropriate. Additionally, the Audit Committee receives reports on all matters reported to the Chief Ethics and Compliance Officer that involve accounting, internal control or audit matters, or any fraud involving persons with a significant role in our internal controls.

Communications with the Board

As described on our website at www.travelers.com, interested parties, including shareholders, who wish to communicate with a member or members of the Board, including the Lead Director of the Board, the Nominating and Governance Committee, the non-employee directors as a group, or the Audit Committee may do so by addressing their correspondence as follows: if intended for the full Board or one or more non-employee directors, to the Lead Director; if intended for the Lead Director, to the Lead Director; and if intended for the Audit Committee or the Nominating and Governance Committee, to the Chair of such Committee.

All such correspondence should be sent c/o Corporate Secretary, The Travelers Companies, Inc., 385 Washington Street, Saint Paul, Minnesota 55102. The office of the Corporate Secretary will forward such correspondence as appropriate.

Shareholder Engagement

In addition to the general correspondence process above, the Nominating and Governance Committee oversees a shareholder engagement program relating to the Company’s governance and compensation practices. Under this program, at the direction of the Nominating and Governance Committee, management reaches out to the Company’s largest shareholders at least once each year to facilitate a dialogue regarding governance, compensation and other matters. Management reports on the resulting conversations with those investors to the Nominating and Governance Committee and also, as appropriate, to the Compensation Committee. In 2018, the Company also carried out a comprehensive engagement initiative aimed at understanding its shareholders’ views with respect to Environmental, Social and Governance matters. Through these combined efforts, in 2018, the Company engaged with shareholders representing more than 40% of the Company’s outstanding shares. The shareholder engagement program

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continues to influence and inform the Company’s policies and practices. In addition, for example, in the past few years based in part on investor input:

●	the Compensation Committee enhanced the disclosure in the “Compensation Discussion and Analysis”;
●	the Company provided disclosure on its website regarding its pay equity practices;
●	the Company made clarifying changes to its policy regarding participation in the political process and provided additional disclosure of political contributions and lobbying activities on its website;
●	the Company provided additional disclosure regarding the Board’s oversight of the Company’s enterprise risk management program, including risks related to changing climate conditions; and
●	the Board amended the charter of the Nominating and Governance Committee to make explicit the committee’s oversight responsibility with respect to the Company’s diversity and inclusion initiatives, lobbying activities and charitable giving.

Transactions with Related Persons

General

The Board has adopted a written Related Person Transaction Policy to assist it in reviewing, approving and ratifying related person transactions and to assist us in the preparation of related disclosures required by the SEC. This Related Person Transaction Policy supplements our other policies that may apply to transactions with related persons, such as our Governance Guidelines and Code of Conduct.

The Related Person Transaction Policy provides that all related person transactions covered by the policy are prohibited, unless approved or ratified by the Board or by the Nominating and Governance Committee. Our directors and executive officers are required to provide prompt and detailed notice of any potential Related Person Transaction (as defined in the policy) to the Corporate Secretary, who in turn must promptly forward such notice and information to the Chair of the Nominating and Governance Committee and to our counsel for analysis, to determine whether the particular transaction constitutes a Related Person Transaction requiring compliance with the policy. The analysis and recommendation of counsel are then presented to the Nominating and Governance Committee for consideration at its next regular meeting.

In reviewing Related Person Transactions for approval or ratification, the Nominating and Governance Committee will consider the relevant facts and circumstances, including:

●	the commercial reasonableness of the terms;
●	the benefit (or lack thereof) to the Company;
●	opportunity costs of alternate transactions;
●	the materiality and character of the related person’s interest, including any actual or perceived conflicts of interest; and
●	with respect to a non-employee director or nominee, whether the transaction would compromise the director’s (1) independence under our Governance Guidelines, the NYSE rules (including those applicable to committee service) and Rule 10A-3 of the Exchange Act, if such non-employee director serves on the Audit Committee, (2) status as an outside director under Section 162(m), if such non-employee director serves on the Compensation Committee, or (3) status as a “non-employee director” under Rule 16b-3 of the Exchange Act, if such non-employee director serves on the Compensation Committee.

The Nominating and Governance Committee will not approve or ratify a Related Person Transaction unless, after considering all relevant information, it has determined that the transaction is in, or is not inconsistent with, the best interests of the Company and our shareholders.

Generally, the Related Person Transaction Policy applies to any current or proposed transaction in which:

●	the Company was or is to be a participant;
●	the amount involved exceeds $120,000; and
●	any related person had or will have a direct or indirect material interest.

A copy of our Related Person Transaction Policy is available on our website at www.travelers.com under “For Investors: Corporate Governance: Related Person Transaction Policy”.

In addition to the Related Person Transaction Policy, our Code of Conduct requires that all employees, officers and directors avoid any situation that involves or appears to involve a conflict of interest between their personal and professional relationships. Our Audit Committee provides oversight regarding compliance with our Code of Conduct and discusses any apparent conflicts of interest with senior management. The policies of the Company also require that all employees seek approval from our Chief Ethics and Compliance Officer prior to accepting a position as a director or officer of any unaffiliated for-profit company or organization.

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Corporate Governance | Non-Employee Director Compensation

Employment Relationships

We employ approximately 30,400 employees, approximately 7,400 of whom work in and around Hartford, Connecticut. The following employees are related to executive officers:

●	Mr. Jay Benet is Vice Chairman and served as Chief Financial Officer of the Company until September 1, 2018. His stepson, Mr. Jon-Paul Mucha, has been employed by the Company since 2003. In 2018, his total compensation, including salary, bonus, equity awards and other benefits, totaled approximately $135,000. His compensation is commensurate with that of his peers.
●	Ms. Diane Bengston is Executive Vice President and Chief Human Resources Officer of the Company. Her son, Mr. Scott Bengston, has been employed by the Company since 2010. In 2018, his total compensation, including salary, bonus, equity awards and other benefits, totaled approximately $157,000. His compensation is commensurate with that of his peers.
●	Mr. Brian MacLean served as President and Chief Operating Officer of the Company until April 2, 2018. His daughter, Ms. Erin Cha, and his son-in-law, Mr. Junghwan Cha, have been employed by the Company since 2005 and 2009, respectively. In 2018, their combined total compensation, including salary, bonuses, equity awards and other benefits, totaled approximately $253,000. Their compensation is commensurate with that of their peers.
●	Mr. MacLean’s son-in-law, Mr. Mark Dunlap has been employed by the Company since 2012. In 2018, his total compensation, including salary, bonus, equity awards and other benefits, totaled approximately $145,000. His compensation is commensurate with that of his peers.

Third-Party Transactions

From time to time, institutional investors, such as large investment management firms, mutual fund management organizations and other financial organizations, become beneficial owners (through aggregation of holdings of their affiliates) of 5% or more of voting securities of the Company and, as a result, are considered a “related person” under the Related Person Transaction Policy. These organizations may provide services to the Company or its benefit plans. In addition, the Company may provide insurance coverage to these organizations. In 2018, the following transactions occurred with investors who reported beneficial ownership of 5% or more of the Company’s voting securities:

●	An affiliate of BlackRock, Inc. (“BlackRock”) provides investment management services to the Company’s Canadian Savings Plan. The participants in the Canadian Savings Plan paid approximately $165,000 in management fees to BlackRock in 2018. The investment management agreement was entered into on an arm’s-length basis. In 2018, BlackRock paid premiums of approximately $977,000 for insurance policies with subsidiaries of the Company in the ordinary course of business and on substantially the same terms as those offered to other customers.
●	An affiliate of State Street Corporation (“State Street”) provides investment management services to funds included in the Company’s 401(k) Savings Plan. The participants in the 401(k) Savings Plan paid approximately $304,000 in management fees to State Street in 2018. The investment management agreement was entered into on an arm’s-length basis. In 2018, State Street paid premiums of approximately $401,000 for insurance policies with subsidiaries of the Company in the ordinary course of business and on substantially the same terms as those offered to other customers.
●	An affiliate of The Vanguard Group (“Vanguard”) provides investment management services to funds included in the Company’s 401(k) Savings Plan and the qualified and non-qualified pension plans. The participants in the 401(k) Savings Plan and the Company paid approximately $1.22 million and $909,000, respectively, in management fees to Vanguard in 2018. The investment management agreements were entered into on an arm’s-length basis. In 2018, Vanguard paid premiums of approximately $1.34 million for insurance policies with subsidiaries of the Company in the ordinary course of business and on substantially the same terms as those offered to other customers.

Non-Employee Director Compensation

The Nominating and Governance Committee of the Board recommends to the full Board for approval the amount and composition of Board compensation for non-employee directors (the “Director Compensation Program”). Directors who are our employees are not compensated for their service on the Board. In accordance with the Company’s Governance Guidelines, the Nominating and Governance Committee reviews the significance and appropriateness of each of

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Corporate Governance  |  Non-Employee Director Compensation

the components of the Director Compensation Program at least once every two years. The Compensation Committee’s independent compensation consultant, FW Cook, advises the Nominating and Governance Committee with respect to director compensation.

The objectives of the Nominating and Governance Committee are to compensate directors in a manner that closely aligns the interests of directors with those of our shareholders, to attract and retain highly qualified directors and to structure and set total compensation in such a manner and at such levels that will not call into question any director’s objectivity. It is the Board’s practice to provide a mix of cash and equity-based compensation to non-employee directors, as discussed below.

Elements of Non-Employee Director Compensation

	Element				Timing
	Annual Retainer		Each non-employee director receives an annual retainer of $130,000.		Annual retainers and committee chair fees are paid in quarterly installments, in arrears at the end of each quarter, either (1) in cash or, (2) if the director so elects, in common stock units credited to his or her deferred compensation account (discussed under “Director Deferral Plan” below) and distributed at a later date designated by the director.
	Committee Chair Fees and Lead Director Retainer		The chairs of certain committees are paid additional fees in cash in connection with their services as follows: ●Audit Committee—$25,000; ●Compensation Committee—$25,000; ●Nominating and Governance Committee—$20,000; ●Investment and Capital Markets Committee—$20,000; and ●Risk Committee—$25,000. The Lead Director is paid an additional $35,000 annual cash retainer.
	Annual Deferred Stock Award		Under the Director Compensation Program, during 2018, each non-employee director nominated for re-election to the Board was awarded $175,000 in deferred stock units. The deferred stock units were granted under our Amended and Restated 2014 Stock Incentive Plan (the “2014 Stock Incentive Plan”) and vest in full one day prior to the date of the annual shareholder meeting occurring in the year following the year of the date of grant so long as the non-employee director continuously serves on the Board through that date. The value of deferred stock units rises or falls as the price of our common stock fluctuates in the market. Dividend equivalents (in an amount equal to the dividends paid on shares of our common stock) on the deferred stock units are deemed “reinvested” in additional deferred stock units. Directors are subject to a stock ownership target as described under “Director Stock Ownership” on page 23.		The accumulated deferred stock units, including associated dividend equivalents, in a director’s account are distributed in the form of shares of our common stock either in a lump sum or in annual installments, at the director’s election, beginning at least six months following termination of his or her service as a director.

Director Deferral Plan

In addition to receiving the annual deferred stock award in the form of deferred stock units, non-employee directors may elect to have all or any portion of their annual retainer and any lead director or committee chair fees paid in cash or deferred through our Deferred Compensation Plan for Non-Employee Directors. Deferrals of the annual retainer and any lead director or committee chair fees are notionally “invested” in common stock units. Any director who elects to have any of his or her fees credited to his or her deferred compensation plan account as common stock units will be deemed to have purchased shares on the date the fees would otherwise have been paid in cash, based on the closing market price of our common stock on such date.

The value of common stock units rises or falls as the price of our common stock fluctuates in the market. In addition, dividend equivalents (in an amount equal to the dividends paid on shares of our common stock) on the units are deemed “reinvested” in additional common stock units. The accumulated common stock units, including associated dividend equivalents, in a director’s account are distributed in the form of shares of our common stock on pre-designated dates, usually following termination of service as a director. Shares of common stock issued in payment of the deferred fees are awarded under our 2014 Stock Incentive Plan.

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Corporate Governance  |  Non-Employee Director Compensation

Director Stock Ownership

The Board believes its non-employee directors should accumulate and retain a level of ownership of our equity securities to align the interests of the non-employee directors and the shareholders. Accordingly, the Board has established an ownership target for each non-employee director equal to four times the director’s most recent annual deferred stock award. Each new director is expected to meet or exceed this target within four years of his or her initial election to the Board, provided that, if the annual deferred stock award for any of such four years is less than the most recent previous annual deferred stock award, such director is expected to meet or exceed the higher target within five years of his or her initial election to the Board.

All of our current non-employee directors have achieved stock ownership levels in excess of the target amount, other than Mr. Schermerhorn, who was first elected to our Board in 2016, and Mr. Otis, who was first elected to our Board in 2017. Non-employee directors currently receive over 50% of their annual compensation in the form of deferred stock units. The shares underlying these units are not distributed to a director until at least six months after the director leaves the Board. Accordingly, all of our non-employee directors hold equity interests that they cannot sell for so long as they serve on the Board and at least six months afterwards.

Legacy Directors’ Charitable Award Program

Prior to 2004, directors of the Company were eligible to participate in a Directors’ Charitable Award Program, under which a director could designate up to four tax-exempt charitable, educational or other organizations to receive contributions from the Company over a period of ten years following the death of the director, in an aggregate amount over such period of up to $1 million per director.

This program was discontinued for new participants in April 2004; however, it continues to be actively administered with respect to the vested interests of Messrs. Dasburg and Duberstein. The Company carries life insurance policies on these two current directors. The premiums in connection with this program were fully paid by the Company in 2013.

Director Compensation for 2018

The 2018 compensation of non-employee directors is displayed in the table below.

Name		Fees Earned or Paid in Cash(1) ($)		Stock Awards(2) ($)		All Other Compensation ($)		Total ($)
Alan L. Beller		130,000		174,936		—		304,936
John H. Dasburg		165,000		174,936		—		339,936
Janet M. Dolan		150,000		174,936		—		324,936
Kenneth M. Duberstein		150,000		174,936		1,457		326,393
Patricia L. Higgins		130,000		174,936		—		304,936
William J. Kane		155,000		174,936		—		329,936
Cleve L. Killingsworth Jr.(3)		51,428		—		427		51,855
Clarence Otis Jr.		130,000		174,936		—		304,936
Philip T. Ruegger III		130,000		174,936		—		304,936
Todd C. Schermerhorn		155,000		174,936		—		329,936
Donald J. Shepard		155,000		174,936		—		329,936
Laurie J. Thomsen		130,000		174,936		—		304,936

(1)

The fees earned for all non-employee directors consist of an annual retainer, committee chair fees and a lead director annual retainer. All of the non-employee directors, other than Mr. Otis, Mr. Ruegger and Mr. Shepard, received all of their fees in cash. Mr. Otis, Mr. Ruegger and Mr. Shepard elected to receive the 2018 annual retainer and Mr. Shepard elected to receive his committee chair fee in the form of common stock units, which will be accumulated in their respective deferred compensation plan account and distributed at a later date (Mr. Otis—1,022 common stock units, Mr. Ruegger—1,022 common stock units and Mr. Shepard—1,218 common stock units). The table above does not include a value for dividend equivalents attributable to the common stock units received in lieu of cash fees because they are earned at the same rate as the dividends on the Company’s common stock and are not preferential.

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(2)

The dollar amounts represent the grant date fair value of deferred stock units granted in 2018, calculated in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 718, Compensation-Stock Compensation (“ASC Topic 718”), without taking into account estimated forfeitures, based on the closing market price on the NYSE of our common stock on the grant date. The dividend equivalents attributable to the annual deferred stock unit awards are deemed “reinvested” in additional deferred stock units and are distributed, together with the underlying deferred stock units, in the form of shares of our common stock beginning at least six months following termination of service as a director. In accordance with the SEC’s rules, dividend equivalents on stock awards are not required to be reported because the amounts of future dividends are factored into the grant date fair value of the awards. For a discussion of annual deferred stock awards, see “Elements of Non-Employee Director Compensation, Annual Deferred Stock Award” above. On February 6, 2018, each non-employee director nominated for re-election to the Board was granted 1,242 deferred stock units (determined by dividing $175,000 by the closing market price on the NYSE of our common stock of $140.85 on February 6, 2018). The entire award is subject to forfeiture if a director leaves the Board prior to the day prior to our 2019 Annual Meeting of Shareholders (May 21, 2019). The following table provides information with respect to aggregate holdings of common stock units and unvested and vested deferred stock units beneficially owned by our non-employee directors at December 31, 2018. The amounts below include dividend equivalents credited (in the form of additional common stock units or deferred stock units, respectively) on common stock units and deferred stock units.

(3)	Mr. Killingsworth retired from the Company’s Board of Directors effective May 23, 2018, the date of our 2018 annual meeting of shareholders. The fees earned by Mr. Killingsworth consist of the pro-rated portion of the annual retainer for the period through such date.

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Audit Committee Matters  |  Item 2 and Audit and Non-Audit Fees

Audit Committee Matters

Item 2

Ratification of Independent Registered Public Accounting Firm

The Audit Committee is responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm retained to audit the Company’s financial statements. The Audit Committee has selected KPMG LLP (“KPMG”) to serve as our independent registered public accounting firm for 2019.

Although ratification is not required by our bylaws or otherwise, the Board is submitting the selection of KPMG to our shareholders for ratification because we value our shareholders’ views on the Company’s independent registered public accounting firm. If our shareholders fail to ratify the selection, it will be considered notice to the Board and the Audit Committee to consider the selection of a different firm. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders.

Travelers Property Casualty Corp. (“TPC”) and The St. Paul Companies, Inc. (“The St. Paul”) merged in 2004 (the “Merger”) to form the Company. KPMG has continuously served as the independent registered public accounting firm of TPC since 1994. KPMG had continuously served as the independent registered public accounting firm of The St. Paul and its subsidiaries from 1968 through the time of the Merger, when TPC was deemed the acquirer for accounting purposes.

As part of the evaluation of its independent registered public accounting firm, the Audit Committee periodically considers whether there should be a regular rotation of the independent registered public accounting firm. In addition, in conjunction with the mandated rotation of the independent registered public accounting firm’s lead audit partner, the Audit Committee and the Audit Committee Chairman are directly involved in the selection of KPMG’s lead audit partner. The Audit Committee and the Board of Directors believe that the continued retention of KPMG to serve as the Company’s independent registered public accounting firm is in the best interests of the Company and its shareholders.

Representatives of KPMG are expected to be present at the Annual Meeting. They also will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.

Your Board recommends you vote FOR the ratification of KPMG LLP as our independent registered public accounting firm for 2019.

Audit and Non-Audit Fees

In connection with the audit of the 2018 financial statements, we entered into an agreement with KPMG which set forth the terms by which KPMG would perform audit services for the Company. The following table presents fees for professional services rendered by KPMG for the audit of our financial statements for 2018 and 2017 and fees billed for other services rendered by KPMG for those periods:

			2018			2017
Audit fees(1)		$	9,459,300		$	9,364,000
Audit-related fees(2)			704,700			948,400
Tax fees(3)			135,400			122,500
All other fees(4)			4,900			52,400
Total		$	10,304,300		$	10,487,300

(1)	Fees paid were for audits of financial statements, reviews of quarterly financial statements and related reports and reviews of registration statements and certain periodic reports filed with the SEC.
(2)	Services primarily consisted of audits of employee benefit plans, actuarial attestations and reports on internal controls not required by applicable regulations.
(3)	Tax fees related primarily to tax return preparation and assistance services and occasionally to domestic and international tax compliance-related services.
(4)	2018 other fees relate to training services; 2017 other fees relate to international regulatory advisory services.

The Audit Committee of the Board considered whether providing the non-audit services included in this table was compatible with maintaining KPMG’s independence and concluded that it was.

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Audit Committee Matters  |  Report of the Audit Committee

Consistent with SEC policies regarding auditor independence and the Audit Committee’s charter, the Audit Committee has responsibility for appointing, setting compensation for and reviewing the performance of the independent registered public accounting firm. In exercising this responsibility, the Audit Committee preapproves all audit and permitted non-audit services provided by the independent registered public accounting firm. Each year, the Audit Committee approves an annual budget for such permitted non-audit services and requires the independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year. The Audit Committee has authorized our Chief Auditor to approve KPMG’s commencement of work on such permitted services within that budget, although the Chair of the Audit Committee must approve any such permitted non-audit service within the budget if the expected cost for that service exceeds $100,000. During the year, circumstances may arise that make it necessary to engage the independent registered public accounting firm for additional services that would exceed the initial budget. The Audit Committee has delegated the authority to the Chair of the Audit Committee to review such circumstances and to grant approval when appropriate. All such approvals are then reported by the Audit Committee Chair to the full Audit Committee at its next meeting.

Report of the Audit Committee

The Audit Committee operates pursuant to a charter which is reviewed annually by the Audit Committee. Additionally, a brief description of the primary responsibilities of the Audit Committee is included under the heading “Governance of Your Company—Committees of the Board and Meetings—Audit Committee” in this Proxy Statement. Under the Audit Committee charter, management is responsible for the preparation, presentation and integrity of the Company’s financial statements, the application of accounting and financial reporting principles and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent registered public accounting firm is responsible for auditing the Company’s financial statements and expressing an opinion as to their conformity with U.S. generally accepted accounting principles. In addition, the independent registered public accounting firm is responsible for auditing and expressing an opinion on the Company’s internal controls over financial reporting.

In the performance of its oversight function, the Audit Committee reviewed and discussed the audited financial statements of the Company with management and with the independent registered public accounting firm. The Audit Committee also received information regarding, and discussed with the independent registered public accounting firm, the matters required to be discussed by applicable standards adopted by the Public Company Accounting Oversight Board, including matters concerning the independence of the independent registered public accounting firm.

Based upon the review and discussions described in the preceding paragraph, the Audit Committee recommended to the Board that the audited financial statements of the Company be included in the Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC.

Submitted by the Audit Committee of the Company’s Board of Directors:

William J. Kane (Chair)		Patricia L. Higgins
Alan L. Beller		Todd C. Schermerhorn
John H. Dasburg		Laurie J. Thomsen

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Executive Compensation  |  Item 3

Executive Compensation

Item 3

Non-Binding Vote to Approve Executive Compensation

The Company is requesting that shareholders vote, on a non-binding basis, to approve the compensation of our named executive officers as discussed in the “Compensation Discussion and Analysis” beginning on page 28 and the tabular executive compensation disclosure on pages 52 to 66, including the “Summary Compensation Table” and accompanying narrative disclosure. At the Company’s 2017 annual meeting of shareholders, our shareholders indicated their preference to hold the non-binding shareholder vote to approve the compensation of our named executive officers each year. Accordingly, the Company currently intends to hold such votes annually. The next such vote is expected to be held at the Company’s 2020 Annual Meeting of Shareholders. While the Board intends to consider carefully the results of this vote, the final vote is advisory in nature and is not binding on the Company or the Board.

The Board recommends that shareholders vote “FOR” the following resolution:

RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the “Compensation Discussion and Analysis”, compensation tables and related narrative discussion, is hereby APPROVED.

As described in the “Compensation Discussion and Analysis”, our executive compensation programs are structured consistent with our longstanding pay for performance philosophy and utilize performance measures that are intended to align compensation with the creation of shareholder value and to reinforce a long-term perspective.

In deciding how to vote on this proposal, the Board encourages you to read the “Compensation Discussion and Analysis”, particularly the “2018 Overview”. In making compensation decisions for the 2018 performance year, the Compensation Committee considered the Company’s strong results in 2018 and over time on both an absolute basis and relative to our peers, as well as the financial metrics and other factors described in the “Compensation Discussion and Analysis”.

Your Board recommends you vote FOR approval of named executive officer compensation.

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Executive Compensation  |  Compensation Discussion and Analysis

Compensation Discussion and Analysis

2018 Overview

The overview below summarizes a number of performance highlights in 2018 and how that performance affected the amount of variable compensation awarded to the named executive officers in February 2019 with respect to the 2018 performance year.

Continued Strong Performance in 2018

Performance	Net Income of $2.52 billion increased 23% from 2017	Return on Equity of 11.0% increased from 8.7% in 2017	Core Income* of $2.43 billion increased 19% from 2017	Core Return on Equity* of 10.7% increased from 9.0% in 2017	Grew adjusted book value per share* after returning more than $2.1 billion to shareholders and continuing to make strategic investments in our business
Underwriting	Underwriting gain* of $681 million pre-tax despite pre-tax catastrophe losses of $1.72 billion. Underlying underwriting gain* (which is our underwriting gain excluding the impact of catastrophes and net favorable prior year reserve development) of more than $1.5 billion after-tax was the highest in over a decade.
Expense Ratio	60 basis point improvement year-over-year in our expense ratio, as we increased revenues, made important investments in ongoing and new strategic initiatives and delivered on our objective of improving productivity and efficiency through technology and workflow enhancements.
Execution of our Marketplace Strategy	Record net written premiums of $27.7 billion, up 6% year-over-year, with all three business segments contributing to our growth, thanks to excellent execution of our strategic initiatives as well as our marketplace strategy of:
	✓Retaining our best business ✓Improving the profitability of business where needed ✓Creating opportunities to write attractive new business
Investment Performance	Our high-quality investment portfolio generated pre-tax net investment income of $2.47 billion and after-tax net investment income of $2.10 billion.
Performance for Customers	Due to our highly sophisticated claims handling model, we were able to adjust virtually 100% of our more than 1.7 million claims with our own claim professionals and without the need for independent adjusters, a better outcome for our customers and a more efficient outcome for us. During 2018, we resolved approximately 95% of our customers’ property claims arising out of the largest catastrophe events within 30 days.

2018 Performance-Based Compensation

As discussed in this Compensation Discussion and Analysis, the Compensation Committee considered, among other things, our strong 2018 financial results, the continued successful execution of our ongoing strategic initiatives and the progress we have made on our ambitious innovation agenda and made the following compensation decisions: 

	Element	CEO Outcomes	Other NEO Outcomes
	Annual Bonus	●Mr. Schnitzer’s cash bonus increased 11% year-over-year (from $4.7 million to $5.2 million).	●The average annual cash bonus for Messrs. Heyman and Kess increased 6% year-over-year. ●Mr. Benet’s cash bonus decreased 9% year-over-year, reflecting his transition out of the role of CFO, effective September 1, 2018, and his continued service on the senior leadership team as Vice Chairman. ●Mr. Frey, who was appointed CFO effective September 1, 2018, received a cash bonus of $1.0 million, and Mr. Toczydlowski received a cash bonus of $2.3 million. Neither Mr. Frey nor Mr. Toczydlowski was a named executive officer last year.
	Long-Term Incentives	●Mr. Schnitzer’s annual equity award increased by 10% (from $8.2 million to $9.0 million).	●The average annual equity award for Messrs. Heyman and Kess increased 6% year-over-year. ●Mr. Benet’s annual equity award decreased 9% year-over-year, reflecting the change in his role and responsibilities. ●Messrs. Frey and Toczydlowski, neither of whom were named executive officers last year, received annual equity awards of $1.625 million and $1.75 million, respectively.

*	See “Annex A–Reconciliation of GAAP Measures to Non-GAAP Measures and Selected Definitions” on page A-1.

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Executive Compensation  |  Compensation Discussion and Analysis

Consistent Performance Over Time

Our strong results in 2018 in the face of severe catastrophes demonstrate the continued successful execution of our long-term financial strategy to create shareholder value.

STRATEGIC OBJECTIVE				TRAVELERS 10-YEAR PERFORMANCE
	Deliver superior returns on equity by leveraging our competitive advantages			✓Produced industry leading return on equity with a low level of volatility ✓Increased dividends per share at an average annual rate of 10% ✓Returned more than $34 billion of excess capital to our shareholders ✓Increased our book value per share by 101% ✓Delivered a total return to shareholders of 240%
	Generate earnings and capital substantially in excess of our growth needs
	Thoughtfully rightsize capital and grow book value per share over time

The Company’s successful execution of this long-term financial strategy is demonstrated by the results we have achieved over time as discussed below.

Continued Profitability and Quality Underlying Underwriting Results

The results we deliver are due to our deliberate and consistent approach to creating shareholder value. Our consistently articulated objective is to produce an appropriate return on equity for our shareholders over time. We emphasize that the objective is measured over time because we recognize that weather, reserve developments and interest rates, among a number of other factors, impact our results sometimes significantly from year-to-year. Accordingly, we believe that the right way to manage our business is with a long-term perspective and to create value over time. The Compensation Committee believes that our compensation program should continue to reinforce this long-term perspective, as it has historically.

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Executive Compensation  |  Compensation Discussion and Analysis

Since we began our current share repurchase program in 2006, we have returned approximately $43 billion of excess capital to shareholders through share repurchases (at an average price per share of $65.84) and dividends, an amount that:

●	exceeds the Company’s market capitalization of approximately $30 billion at the time the repurchase program was initially authorized in 2006; and
●	is significantly greater relative to market capitalization than any other member of the Compensation Comparison Group during that period.

Achieved Superior Total Return to Shareholders Over Time

Strong financial results have led to outstanding total returns to shareholders over time (measured as the change in stock price plus the cumulative amount of dividends, assuming dividend reinvestment on the respective dividend payment dates).

We measure our success in executing on our financial strategy over time. This long-term perspective is especially important in the property and casualty insurance industry where a short-term focus could create incentives for management to relax the Company’s underwriting or investment standards to increase revenue and reported profit in the near term but creating excessive risk for shareholders over the longer term. Moreover, results in the property and casualty insurance industry can vary significantly when measured year-to-year due to a variety of factors, including the periodic occurrence of significant catastrophes, such as in 2017 and 2018. Accordingly, we believe that the right way to manage our business is with a long-term perspective and to create value over time. Consequently, in assessing total shareholder return, the Compensation Committee generally gives greater weight to performance over a longer period of time.

Based on the achievements discussed above and elsewhere in this “Compensation Discussion and Analysis”, and other factors, the Compensation Committee determined to increase the performance-based compensation of the named executive officers, as discussed in more detail below.

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Executive Compensation  |  Compensation Discussion and Analysis

Pay-for-Performance Philosophy

Consistent with our longstanding pay-for-performance philosophy, the Compensation Committee believes that:			In addition, to a greater extent than many of the companies included in our Compensation Comparison Group, due to the absence of time-based restricted stock in our ongoing program and, in the case of our CEO, a base salary that is low relative to the peer group, a substantial majority of the ultimate value of our named executive officer compensation is performance-based and is tied to operating results and increases in shareholder value over time.
	When we generally exceed our performance goals and the named executive officers individually perform at superior levels in achieving that performance, total compensation for these executive officers should be set at superior levels compared to the compensation levels for equivalent positions in our Compensation Comparison Group.
	When we do not generally exceed our performance goals or the named executive officers individually do not perform at superior levels, total compensation for these executives should be set at lower levels.

While the objectives and structure of our compensation program have been stable over time, compensation levels vary significantly from year-to-year and correlate with our results. The following two charts illustrate the directional relationship for the past ten performance years (“PY”) between total direct compensation for the CEO (Mr. Schnitzer for PY2016 through PY2018 and Mr. Jay Fishman, our CEO until December 2015, for PY2009 through PY2015) and the Company’s performance, as reflected by core return on equity (“ROE”). As explained under “—Objectives of Our Executive Compensation Program”, the Compensation Committee believes that the effective management of catastrophes can only be evaluated over a longer period of time and that compensation levels should encourage a long-term perspective. Therefore, the Compensation Committee believes that, while catastrophe losses (“CATs”) should impact compensation levels, compensation levels should not be as volatile from year-to-year as changes in financial results due to catastrophe losses.

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Differences between total direct compensation for each performance year in the chart above and information included in the “Summary Compensation Table” are discussed in “—Total Direct Compensation for 2016-2018 (Supplemental Table)” and “—The Differences Between this Supplemental Table and the Summary Compensation Table” on page 51.

Objectives of Our Executive Compensation Program

With our overarching pay-for-performance philosophy in mind, the Compensation Committee has approved the following five primary objectives of our executive compensation program.

1. Link compensation to the achievement of our short- and long-term financial and strategic objectives

The Compensation Committee believes that a properly structured compensation system should measure and reward performance on multiple bases. To ensure an appropriate degree of balance in the program, the compensation system is designed to measure short- and long-term financial and operating performance, the efficiency with which capital is employed in the business, the effective management of risk, the achievement of strategic initiatives and the individual performance of each executive.

The Compensation Committee further believes that the most senior executives, who are responsible for the development and execution of our strategic and financial plans, should have the largest portion of their compensation tied to performance-based incentives, including stock-based compensation, the ultimate value of which is dependent on the performance of our stock price over time and our three-year core return on equity. Accordingly, the proportion of total compensation that is performance-based increases with successively higher levels of responsibility. In addition, in evaluating the Company’s overall performance, the Compensation Committee takes into account that our business is subject to year-to-year volatility outside of management’s control, including natural and man-made catastrophic events. The Compensation Committee believes that, because the impact of catastrophes in any given year can produce significant volatility, the effective management of catastrophes can only be evaluated over a longer period of time. As a result, although the Compensation Committee believes that the impact of catastrophes on the Company’s financial results should be reflected in its executive compensation decisions, the Compensation Committee does not believe it is appropriate for compensation levels to be subject to as much volatility year-to-year as may be caused by actual catastrophes.

2. Provide competitive compensation opportunities to attract, retain and motivate high-performing executive talent

Our overall compensation levels are designed to attract and retain the best executives in light of the competition for executive talent. We recognize that to continue to produce industry leading results over time, we need to continuously cultivate that talent. We do so with competitive compensation programs that are designed to attract, motivate and retain our best people, development programs that foster personal and professional growth and a focus on diversity as a business imperative.

In addition, the Compensation Committee believes that, when we generally exceed our performance goals and the named executive officers individually perform at superior levels in achieving that performance, total compensation for these executive officers should be set at superior levels compared to the compensation levels for equivalent positions in our Compensation Comparison Group. When we do not generally exceed our performance goals or the named executive officers individually do not perform at superior levels, total compensation for these executives should be set at lower levels.

The Compensation Committee may also take into account other relevant facts and circumstances in awarding compensation in order to attract, retain and motivate high-performing talent.

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3. Align the interests of management and shareholders by paying a substantial portion of total compensation in stock-based incentives and ensuring that executives accumulate meaningful stock ownership stakes over their tenure

The Compensation Committee believes that the interests of executives and shareholders should be aligned. Accordingly, a significant portion of the total compensation for the named executive officers is in the form of stock-based compensation. The components of the annual stock-based compensation granted to the named executive officers in 2019 and 2018 were stock options and performance shares. Stock options provide value only if our stock appreciates and performance shares vest only if specified core return on equity thresholds are met. In addition, as discussed below, senior executives are expected to achieve specified stock ownership targets prior to selling any stock acquired upon the exercise of stock options or the vesting of performance shares or restricted stock units. Both the portion of total compensation attributable to stock-based programs and the expected level of executive stock ownership increase with successively higher levels of responsibility.

4. Maximize, to the extent equitable and practicable, the financial efficiency of the overall compensation program

As part of the process of approving the initial design of incentive plans, or any subsequent modifications made to such plans, and determining awards under the plans, the Compensation Committee evaluates the aggregate economic costs and dilutive impact to shareholders of such compensation, the expected tax and accounting treatment and the impact on our financial results. The Compensation Committee attempts to balance the various financial implications of each program to ensure that the system is as efficient as possible and that unnecessary costs are avoided.

5. Reflect established and evolving corporate governance standards

The Compensation Committee, with the assistance of our Human Resources Department and the Compensation Committee’s independent compensation consultant, stays abreast of current and developing corporate governance standards and trends with respect to executive compensation and adjusts the various elements of our executive compensation program, from time to time, as it deems appropriate.

As a result of this process, the Compensation Committee has adopted the following practices, among others:

What We DO:		What We DO NOT Do:
✓Maintain robust share ownership requirement ✓Maintain a clawback policy with respect to cash and equity incentive awards to our executive officers ✓Prohibit hedging transactions as specified in our securities trading policy ✓Prohibit pledging shares without the consent of the Company (no pledges have been made) ✓Engage in outreach and maintain a dialogue with shareholders relating to the Company’s governance and compensation practices		✕No excise tax “gross-up” payments in the event of a change in control ✕No tax “gross up” payments on perquisites for named executive officers ✕No repricing of stock options and no buy-out of underwater options ✕No excessive or unusual perquisites ✕No dividends or dividend equivalents paid on unvested performance shares ✕No above-market returns provided for in deferred compensation plans ✕No guaranteed equity or bonuses for named executive officers

For a description of the duties of the Compensation Committee and its use of an independent compensation consultant, see “Governance of Your Company—Committees of the Board and Meetings—Compensation Committee” on page 11.

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Compensation Elements and Decisions

With our pay-for-performance philosophy and compensation objectives discussed above as our guiding principles, we deliver annual executive compensation through the following elements:

2018 COMPENSATION MIX(1)

(1)	Pay mix of total direct compensation for the 2018 performance year as reported in the Supplemental Table on page 51.

Cash-based Compensation		Stock-based Compensation
Consistent with recent years, the Compensation Committee has determined that the allocation of compensation between performance-based annual cash bonus and stock-based, long-term incentives should be somewhat more heavily weighted towards cash bonus as compared to our Compensation Comparison Group. The Compensation Committee believes that this allocation is appropriate in light of the fact that a higher percentage of the named executive officers’ total compensation (and total direct compensation) is performance-based as compared to the peer average and peer median of the Compensation Comparison Group. In particular, unlike a number of other companies in our Compensation Comparison Group, annual equity awards made to the named executive officers are typically all performance-based.		Annual awards of stock-based compensation are typically in the form of stock options and performance shares. Because our performance shares only vest if specified core return on equity thresholds are met, and because stock options provide value only if our stock price appreciates, the Compensation Committee believes that such compensation is all performance-based; that is, the compensation typically awarded annually to our CEO and other named executive officers generally does not include awards that are earned solely due to the passage of time without regard to performance.

The following chart illustrates the mix of performance-based compensation to non-performance-based compensation of our CEO, compared to the CEOs of our Compensation Comparison Group.

TRAVELERS CEO PAY MIX(1) AND PEER AVERAGE CEO PAY MIX(2)

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(1)

Pay mix of total direct compensation for the 2018 performance year as reported in the Supplemental Table on page 51.

(2)

Peer Average CEO Pay Mix reflects the pay mix of total direct compensation for our Compensation Comparison Group for their 2017 performance year (the most recent year for which data was publicly available) and was calculated by the Company using data provided by the Compensation Committee’s independent compensation consultant. As part of that calculation, the independent compensation consultant annualized special non-recurring long-term incentive grants (for example, new hire, retention and promotion awards) to reflect an estimate of “per year” value when appropriate.

We also provide benefits and modest perquisites. In addition, from time to time, the Compensation Committee may make special cash or equity awards to one or more of our named executive officers. No special cash or equity awards were made to our named executive officers for the 2018 performance year.

Base Salary

2018 Base Salaries

Mr. Schnitzer’s current base salary as CEO is below the 10^th percentile when compared to other CEOs in our Compensation Comparison Group. The Compensation Committee set the base salary for our CEO below the 50^th percentile because it believes that the CEO’s compensation should be more heavily weighted to variable performance-based compensation, as shown in the chart on page 35. Mr. Schnitzer’s base salary has not increased since he was appointed CEO in 2015.

At its February 2019 meeting, the Compensation Committee increased (effective April 1, 2019) the base salaries for each of the named executive officers other than the CEO by $50,000, except with respect to Mr. Benet who received a $30,000 increase in base salary, reflecting the change in his role and responsibilities in 2018. In increasing the base salaries, the Compensation Committee considered that these other named executive officers, with the exception of Mr. Frey who was recently promoted to CFO, had not received an increase in base salary since 2016.

After this February 2019 increase, the base salaries for the named executive officers other than the CEO are on average at approximately the 55^th percentile of our Compensation Comparison Group, based on the most recently available data as provided by the Compensation Committee’s independent compensation consultant. Because salaries for executive officers are typically changed infrequently, at the time the Compensation Committee increases the salaries of executives who have not received an increase in several years, such salaries on average may, initially and for a period of time following such increases, be higher than the 50^th percentile of our Compensation Comparison Group indicated by the most recently available data on the basis that over time the average is expected to be at, or near, approximately the 50^th percentile.

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Annual Cash Bonus

The named executive officers are eligible to earn performance-based annual cash bonuses under the Senior Executive Performance Plan, a plan approved by our shareholders. The annual bonuses are based upon the individual performance of each executive as well as that of the Company as a whole. The annual cash bonuses are designed to further our goals described under “—Objectives of Our Executive Compensation Program”, including motivating and promoting the achievement of our short-term and long-term financial and strategic objectives.

*	See “Annex A–Reconciliation of GAAP Measures to Non-GAAP Measures and Selected Definitions” on page A-1.

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Factors Considered in Awarding 2018 Bonuses

In determining the actual annual bonuses awarded, the Compensation Committee applied its business judgment and considered a number of factors, including:

✓	our strong financial performance in 2018 despite another year of historically high catastrophes, as described above under “—2018 Overview”;
✓	our successful execution of our marketplace and capital management strategies, as described under “—2018 Overview”;
✓	the consolidated, business segment and/or investment results relative to the various financial measures set forth in our 2018 business plan that was established and approved by the Board at the end of 2017;
✓	our effective management of expenses, as we increased revenues, made important investments in ongoing and new strategic initiatives and delivered on our objective of improving productivity and efficiency through technology and workflow enhancements which enabled us to keep our general and administrative expenses only slightly higher than the prior year while growing net written premiums by 6% to record levels;
✓	our successful execution of our underwriting strategies as reflected in our strong underwriting results in 2018, including after-tax underlying underwriting gain that was the highest in over a decade;
✓	our strategic positioning and progress made on strategic initiatives;
✓	our continued advancement of our innovation agenda focused on our three priorities of: extending our advantage in risk expertise; providing great experiences for our customers, agents and brokers; and optimizing productivity and efficiency;
✓	our overall response to the 2018 catastrophes and specifically the claim organization’s excellent performance based on our highly sophisticated claims handling model, which produced a better experience for our customers and a better outcome for us;
✓	our performance relative to the companies in our Compensation Comparison Group along with other companies in the property and casualty insurance industry, with a particular emphasis on core return on equity;
✓	compensation market practices as reflected by the Compensation Comparison Group in the most recent publicly available data;
✓	the performance of the executive;
✓	the tenure and compensation history of the executive; and
✓	the demonstration of leadership and teamwork.

In addition, with respect to Mr. Schnitzer, the Compensation Committee also considered the successful leadership transition among the senior management team over the past three years.

As discussed below, the Compensation Committee generally weighs financial performance measures, particularly core return on equity, and comparable compensation information more heavily than other factors. In particular, when assessing results, the Compensation Committee considers the Company’s overall financial performance relative to prior years’ performance, the financial plan, the performance of industry peers and, in the case of core return on equity, the Company’s cost of equity.

The achievement, or inability to achieve, any particular financial or operational measure in a given year neither guarantees, nor precludes, the payment of an award, but is considered by the Compensation Committee as one of several factors among the other factors noted above and any additional information available to it at the time, including market conditions in general. The Compensation Committee does not use a formula or assign any particular relative weighting to any performance measure.

As discussed under “Annual Cash Bonus—Metrics” on page 37, the Compensation Committee believes that a formulaic approach to compensation is not appropriate in the property and casualty insurance industry and is not an appropriate substitute for the Compensation Committee’s informed and thorough deliberation and the application of its reasoned business judgment as it would not allow the Compensation Committee to assess the quality of the performance results and could result in negative unintended consequences. For example, a formulaic bonus plan tied to revenue growth (a common metric used in formulaic bonus plans) could create an incentive for management to relax the Company’s underwriting or investment standards to increase revenue and reported profit on a short-term basis, thereby driving higher short-term bonuses, but creating excessive risk for shareholders over the longer term. This is of particular concern in the property and casualty insurance industry due to the fact that the “cost of goods sold” (that is, the amount of insured losses) is not known at the time of sale and develops over time—in some cases over many years.

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2018 Financial Metrics, Including Core Return on Equity Target

In evaluating the foregoing factors, the Compensation Committee reviewed management’s progress in meeting a broad range of financial and operational metrics included in the 2018 financial plan approved by the Board in December 2017. As discussed above, of the various financial metrics evaluated by the Compensation Committee, the Compensation Committee considered core return on equity to be the most important metric in its evaluation of the Company’s annual performance, and it reviewed other metrics in light of their contribution to the Company’s return on equity goals. For the 2018 performance year, the Compensation Committee also considered the 19% increase in core income as compared to 2017.

Core Return on Equity Target

The Compensation Committee established in February 2018 specific targets for both: (1) core return on equity and (2) adjusted core return on equity, which excludes catastrophes and prior year reserve development, if any, related to asbestos and environmental coverages. In particular, the 2018 financial plan targeted: (1) a core return on equity of 10.0% and (2) an adjusted core return on equity of 12.9%.

One of management’s important responsibilities is to produce an appropriate return on equity for our shareholders and to develop and execute financial and operational plans consistent with our financial goal of achieving a mid-teens core return on equity over time. We emphasize that the objective is measured over time because we recognize that interest rates, reserve development and weather, among other factors, impact our results from year to year, and that there are years – or longer periods – and environments in which a mid-teens return is not attainable and other years in which we expect we will achieve or exceed a mid-teens return. For example, we established the mid-teens goal when the 10-year Treasury was yielding approximately 5%, and in that environment a mid-teens return on equity was industry leading. Our ability to achieve a mid-teens return over time going forward will depend on interest rates returning to more normal levels by historical standards. In any event, the Company aspires to generate a core return on equity that is industry leading.

The targeted returns for 2018 reflected interest rates remaining at historically low levels and assumed that catastrophes would be consistent with more normalized levels reflecting long-term historical experience. In addition, in evaluating the appropriateness of the targets set for return on equity, the Compensation Committee considers our return on equity relative to the Compensation Comparison Group, the U.S. property and casualty insurance industry generally and our estimated cost of equity. This relationship to industry returns, over time, is described in the chart on page 30. As a result, when the Board approved our 2018 business plan, both management and the Board believed the plan to be reasonably difficult to achieve.

Notably, the Company’s financial plan—and thus its targets—did not include any planned reserve development, positive or negative. The Company’s actuarial estimates always reflect management’s best estimates of ultimate loss as of the relevant date. As a result, when developing financial plans, the Company does not budget for, or target, prior year reserve development. Adjustments to actual adjusted core return on equity for prior year reserve development related to asbestos and environmental coverages are made because, to a significant degree, those items relate to policies that were written decades ago and, particularly in the case of asbestos, arise to a significant extent as a result of court decisions and other trends that have attempted to expand insurance coverage far beyond what we believe to be the intent of the original parties. Accordingly, their financial impact is largely beyond the control of current management. With respect to core return on equity and adjusted core return on equity, the targets in the 2018 plan were comparable to the targets in the 2017 plan.

For 2018, our results compared to our targets were as follows:

CORE RETURN ON EQUITY		ADJUSTED CORE RETURN ON EQUITY
		Excluding catastrophes and prior year reserve development related to asbestos and environmental coverages.

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The Compensation Committee also considered these results relative to the U.S. property and casualty insurance industry as a whole. In particular, the Company’s 2018 return on equity of 11.0% exceeded the average return on equity for the domestic property and casualty industry in 2018 of approximately 5.2%, as estimated by the Insurance Information Institute.

Other Financial Metrics

In determining annual cash bonuses to be paid to the named executive officers, the Compensation Committee evaluates the Company’s performance with respect to not only core return on equity, but also a broad range of other financial metrics including, among other things, core income and core income per diluted share and other metrics that contribute to those amounts, such as written and earned premiums, investment income and expense management. In 2018, other than with respect to the increase in core income, no one of these other financial metrics was individually material to 2018 compensation decisions.

The relevant targets for these other financial metrics were included in the 2018 financial plan approved by the Board at the end of 2017. The following charts show actual 2018 core income, core income per diluted share and adjusted core income (excluding prior year reserve development related to asbestos and environmental and catastrophes) compared to the corresponding metrics contained in the Company’s 2018 financial plan and to actual 2017 results. Core income of $2.43 billion in 2018 was higher than the goal in the Company’s financial plan and higher than 2017 actual results.

CORE INCOME		CORE INCOME PER DILUTED SHARE		CORE INCOME BEFORE A&E AND CATASTROPHES

(1)

As discussed above, the 2018 targets for core income and core income per diluted share do not include any planned reserve development, either positive or negative and assume catastrophes consistent with more normalized levels reflecting long-term historical experience. In addition, the targets were set using the tax rate applicable at the time and do not reflect the impacts of the Tax Cuts and Jobs Act of 2017.

Amount of 2018 Annual Cash Bonuses

At its February 2019 meeting, the Compensation Committee considered the quantitative and qualitative factors described above and the substantial contributions made by the named executive officers in achieving the 2018 results described above.

The Compensation Committee believed that all of the named executive officers individually performed at superior levels and contributed substantially to our strong results. The Compensation Committee also placed significant weight on the fact that the Company’s executive officers, including the named executive officers, have been highly effective working as a team in driving the Company’s strategic financial plan and innovation agenda.

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In light of the foregoing, the Compensation Committee determined in its judgment to award cash bonuses for the 2018 performance year as follows:

	CEO Bonus		Other NEO Bonus
	●Mr. Schnitzer—cash bonus of $5,200,000, which is $500,000, or 11%, higher than that awarded to him for the 2017 performance year.		●Messrs. Heyman and Kess—aggregate cash bonuses totaling $5,625,000, which were an average of 6% higher than the bonuses awarded to them for the 2017 performance year. ●Mr. Benet—cash bonus of $2,320,000, which was 9% lower than the bonus awarded to him for the 2017 performance year, reflecting the change in his role and responsibilities in 2018. ●Mr. Frey—cash bonus of $1,000,000, in light of his appointment to CFO effective September 1, 2018. ●Mr. Toczydlowski—cash bonus of $2,300,000.

Long-Term Stock Incentives

The Compensation Committee believes that the interests of executives and shareholders should be closely aligned. Accordingly, a significant portion of the total compensation for the named executive officers is in the form of stock-based long-term incentive awards.

Guidelines for the Allocation of Annual Equity Grants

The Compensation Committee, with advice from its independent compensation consultant, has developed guidelines for the allocation of annual grants of equity compensation between performance shares and stock options. Under the guidelines, the mix of long-term incentives, for the named executive officers, based on the grant date fair value of the awards, is approximately:

These allocations are intended to result in a mix of annual long-term incentives that is sufficiently performance-based and will result in:
●	a large component of total compensation being tied to the achievement of specific, multi-year operating performance objectives and changes in shareholder value (performance shares); and
●	an appropriate portion being tied solely to changes in shareholder value (stock options).

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The mix of annual long-term incentive compensation reflects the Compensation Committee’s judgment as to the appropriate balance of these incentives to achieve its objectives. While the aggregate grant date fair values of equity awards granted to the named executive officers take into account both individual and Company performance, the mix of equity incentives awarded annually is fixed and generally does not vary from year-to-year. For a description of the equity awards granted in fiscal year 2018, refer to “—Grants of Plan-Based Awards in 2018” on page 54.

Annual Equity Grants

At its February 2019 meeting, the Compensation Committee granted the following stock-based long-term incentive awards:

		Stock-based long-term incentive award grant date fair value		Change in grant date fair value vs. 2018
Mr. Schnitzer		$9.0 million		Increase of $800,000 (10% higher)
Messrs. Benet, Heyman and Kess		3.0 times their base salary		Increase from 2.8 times base salary (6% higher for Messrs. Heyman and Kess and 9% lower for Mr. Benet, reflecting the change in his role and responsibilities in 2018)
Messrs. Frey and Toczydlowski		2.5 times their base salary		This was their first grant as a named executive officer

The Compensation Committee set the amounts of the above incentive grants in order to position the total direct compensation for these named executive officers higher for the 2018 performance year compared to the 2017 performance year, reflecting the strong performance in 2018 and the increase in core income from 2017, despite another year of historically high level of catastrophes. These equity awards, approved at the February 2019 meeting, will be reflected in the Summary Compensation Table in our Proxy Statement for our 2020 annual meeting.

At its February 2018 meeting, the Compensation Committee granted the following stock-based long-term incentive awards:

		Stock-based long-term incentive award grant date fair value		Change in grant date fair value vs. 2017
Mr. Schnitzer		$8.2 million		Decrease of $800,000 (9% lower)
Messrs. Benet and Heyman		2.8 times their base salary		Decrease from 3.2 times their base salary. (9% lower)
Mr. Kess		$2.4 million (2.8 times his base salary)		This was the first grant of annual stock-based long-term incentive awards to Mr. Kess; prior equity grants were made in connection with the commencement of Mr. Kess’s employment with the Company

The Compensation Committee set the amounts of the above incentive grants in order to position the total direct compensation for these named executive officers lower for the 2017 performance year as compared to the 2016 performance year, reflecting the strong 2017 performance, particularly in light of the high levels of catastrophes in 2017, but taking into account the decline in core income year-over-year.

The equity awards approved for the named executive officers at the February 2018 meeting, are reflected in the “Summary Compensation Table” on page 52.

The ultimate value of stock-based long-term incentive awards at the time of vesting or, in the case of stock options, exercise may be greater than or less than the grant date fair value, depending upon our operating performance and changes in the value of our stock price. The grant date fair values of long-term incentive awards are computed in accordance with the accounting standards described in footnote (1) to the “Summary Compensation Table” on page 52.

Consistent with our historical practice, 60% of the stock-based long-term incentive awards were granted in the form performance shares and 40% of the stock-based long-term incentive awards were granted in the form of stock options in each of 2019 and 2018.

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Performance Shares

Under our program for granting performance shares, we may grant performance shares to certain of our employees who hold positions of vice president (or its equivalent) or above, including the named executive officers. These awards provide the recipient with the right to receive a variable number of shares of our common stock based upon our attainment of specified performance goals. The performance goals for performance share awards granted in 2019 and 2018 are based upon our attaining various adjusted returns on equity over three-year performance periods commencing January 1, 2019 and ending December 31, 2021 and commencing January 1, 2018 and ending December 31, 2020, respectively (in each case, “Performance Period Return on Equity”). Performance Period Return on Equity represents the average of the “Adjusted Return on Equity” for each of the three calendar years in the performance period. The “Adjusted Return on Equity” for each calendar year is determined by dividing “Adjusted Operating Income” by “Adjusted Shareholders’ Equity” for the year, each as defined in the Performance Share Awards Program and described below.

“Adjusted Operating Income”, as defined in the Performance Share Awards Program and referred to herein as “Adjusted Core Income”, excludes the after-tax effects of:

●	specified losses from officially-designated catastrophes;
●	asbestos and environmental reserve charges or releases;
●	net realized investment gains or losses in the fixed maturities and real estate portfolios;
●	extraordinary items; and
●	the cumulative effect of accounting changes and federal income tax rate changes, and restructuring charges, each as defined by GAAP and each as reported in our financial statements (including accompanying footnotes and management’s discussion and analysis);

and is then reduced by the after-tax dollar amount for expected “normal” catastrophe losses. In the first year of the performance period, such expected “normal” catastrophe losses are represented by a fixed amount set forth in the terms of the performance shares ($832 million for 2018, based on the current 21% U.S. corporate income tax rate). In the two subsequent years of the performance period, such fixed amount for catastrophes is adjusted up or down by formula to reflect any increases or decreases, as the case may be, in written premiums in specified catastrophe-exposed commercial and personal lines.

“Adjusted Core Income” is also reduced by an amount reflecting the historical level of credit losses (on an after-tax basis) associated with our fixed-income investments. The Compensation Committee believes this reduction of Adjusted Core Income is appropriate because credit losses in our fixed-income portfolio are part of reported net income but not core income and thus, absent making this reduction, would not be reflected in Adjusted Core Income. Specifically, for performance share awards granted in February 2019 and February 2018, the annual reduction is determined by multiplying a fixed factor (expressed as 2.25 basis points) by the amortized cost of the fixed maturity investment portfolio at the beginning of each quarter during the relevant year in the performance period and adding such amounts (on an after-tax basis) for each year in the performance period.

“Adjusted Shareholders’ Equity” for each year in the performance period is defined in the Performance Share Awards Program as the sum of our total common shareholders’ equity, as reported on our balance sheet as of the beginning and end of the year (excluding net unrealized appreciation or depreciation of investments and adjusted as set forth in the immediately following sentence), divided by two. In calculating Adjusted Shareholders’ Equity, our total common shareholders’ equity as of the beginning and end of the year is adjusted to remove the cumulative after-tax impact of the following items during the performance period: (1) discontinued operations and (2) the adjustments and reductions made in calculating Adjusted Core Income.

The Compensation Committee selected Performance Period Return on Equity as the performance measure in the Performance Share Plan because the Compensation Committee believes it is the best measure of return to shareholders and efficient use of capital over a multi-year period, as described further above under “—Pay-for-Performance Philosophy and Objectives of Our Executive Compensation Program”.

The Compensation Committee seeks to establish the Performance Period Return on Equity standards such that 100% vesting requires a level of performance over the performance period that is expected to be in the top tier of the industry. In considering what would constitute such top tier performance over a future three-year period, the Compensation Committee considers:

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For example, the Compensation Committee noted in respect of the performance shares granted in 2019 that the Performance Period Return on Equity of 10.0% that is required for 100% vesting would meaningfully exceed the average return on equity for the domestic property and casualty insurance industry of 5.2% for 2018, as estimated by the Insurance Information Institute.

Accordingly, while the Compensation Committee decided not to implement a formulaic calculation based on performance relative to other companies in the industry, which it believed could result in over or under compensation, it did set the Performance Period Return on Equity standards after considering the level of historical and expected performance that would constitute superior returns.

See the chart on page 30, which shows historical returns on equity for the Company and the domestic property and casualty insurance industry. In establishing the Performance Period Return on Equity standards shown in the chart below, the Compensation Committee also considered our financial goal of achieving a mid-teens core return on equity over time will depend on interest rates returning to more normal levels by historical standards and that the ongoing objective of achieving an industry leading core return on equity over any period, and in particular a short- or medium-term period such as three years, would, in its view, be reasonably difficult to achieve. The Compensation Committee further considered that in light of the multi-year nature of the performance period, there is uncertainty, particularly in the second and third years of the performance period, with respect to aspects of the operating environment that are beyond management’s control. For example, changes in the competitive environment for pricing, the level of economic activity and interest rates, all of which impact the Company’s ability to meet its performance objectives, are difficult to forecast. Accordingly, the Compensation Committee determined that the Performance Period Return on Equity standards should be set to contemplate that uncertainty. In addition, the Compensation Committee considered that, because the Company’s actuarial estimates reflect management’s best estimates of ultimate loss as of the relevant date, the Company’s future financial plans do not include any prior year reserve development, positive or negative.

For performance shares granted in 2019 and 2018, actual distributions are contingent upon our attaining Performance Period Return on Equity as indicated on the following chart. Performance falling between any of the identified points in the applicable chart below will result in an interpolated vesting percentage (for example, a Performance Period Return on Equity of 14% will yield a vesting of 115%).

PERFORMANCE SHARES GRANTED IN 2019 AND 2018: PERFORMANCE PERIOD RETURN ON EQUITY STANDARDS
		Vesting Percentage			Performance Period Return on Equity for Performance Shares Granted in 2019 and 2018
Maximum		150	%		≥16.0	%
		140	%		15.5	%
		130	%		15.0	%
		120	%		14.5	%
		110	%		13.5	%
		100	%		10.0	%
		75	%		8.5	%
Threshold		50	%		8.0	%
		0	%		<8.0	%

The performance shares are a long-term incentive intended to align a significant portion of our executives’ compensation with return on equity objectives over time. The Compensation Committee from time to time makes adjustments to the Performance Period Return on Equity standards for a year’s awards when, at the time of grant, it determines that there have been significant changes in the returns that it expects should constitute top tier performance.

For performance shares granted in 2019, the Compensation Committee decided not to make any changes to the Performance Period Return on Equity standards. This decision reflected the fact that the Compensation Committee believed that returns that qualify as top tier performance over the next several years will continue to be somewhat lower than longer term historical levels.

The Committee also observed that the Performance Period Return on Equity required for 100% vesting exceeds the actual average return on equity for the domestic property and casualty insurance industry for each of the last 10 years as estimated by the Insurance Information Institute.

In granting future awards, the Compensation Committee intends to continue to review Performance Period Return on Equity standards in light of the then current operating environment and will consider adjustments if, among other reasons, investment yields increase to more normal levels by historical standards.

To support our recruitment and retention objectives and to encourage a long-term focus on our operations, the performance shares vest subject to both the satisfaction of the requisite performance goals and the participant meeting specified service period criteria. The program provides for accelerated vesting and/or waiver of service requirements in

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the event of death or disability or qualifying “retirement,” as defined in the awards. In the event of a participant’s voluntary termination for “good reason” or involuntary termination without “cause” within 24 months following a change in control of the Company, the service vesting requirements with respect to the 2018 and 2019 performance share grants will be waived. Further, under his employment agreement, Mr. Schnitzer is entitled to conversion of all of his performance shares into time-vesting awards upon a change in control and he is entitled to accelerated vesting of all of his equity awards if his equity awards are not assumed by the surviving entity following a change in control or in the event of a voluntary termination for “good reason” or an involuntary termination without “cause” (each as defined in his employment letter) within 24 months following a change in control of the Company. These provisions are included to minimize the potential influence of the treatment of these equity awards in connection with a change in control on Mr. Schnitzer’s and our other executives’ decision-making process and to conform the terms of our program more closely to compensation practices among our peers. The Compensation Committee believes that these provisions will enhance Mr. Schnitzer’s and our other executives’ independence and objectivity when considering a potential transaction. Additionally, under the terms of Mr. Kess’s offer letter, the service requirements applicable to his 2017 performance share grant would be waived in the event of his voluntary termination for “good reason” or involuntary termination without “cause” at any time prior to the scheduled vesting date for such award (without regard to the occurrence of a change in control transaction). These provisions are described in more detail under “—Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control—Summary of Key Agreements—Mr. Schnitzer’s Employment Letter and Mr. Kess’s Offer Letter”.

New performance share cycles commence annually and overlap one another, helping to foster retention and reduce the impact of the volatility in compensation associated with changes in our annual return on equity performance. Dividend equivalent shares are paid only when and if performance shares vest, and are paid, in shares, at the same vesting percentage as the underlying performance shares.

Payment of Performance Shares Granted for the 2016-2018 Period

In February 2019, the Compensation Committee reviewed and subsequently certified the results for the performance shares granted to the named executive officers in 2016. Payout of shares under these performance share awards was subject to attaining specified adjusted returns on equity over the three-year performance period commencing on January 1, 2016 and ending on December 31, 2018. The adjusted return on equity for such performance period was 13.3%, which resulted in the vesting of the performance shares at 109.4%.

Stock Options

All stock options are granted with an exercise price equal to the closing price of the underlying shares on the date of grant. Our annual award of stock options generally vests 100% three-years after the date of grant and has a maximum expiration date of 10 years from the date of grant. Following a change of control, the named executive officers are entitled to accelerated vesting of their stock options under the corresponding situations, and for the same reasons, described above with respect to their performance shares.

Under the Amended and Restated 2014 Stock Incentive Plan, stock options cannot be “repriced” unless such repricing is approved by our shareholders.

Other Compensation

Pension Plans

We provide retirement benefits as part of a competitive pay package to retain employees. Specifically, we currently offer all of our U.S. employees a tax-qualified defined benefit plan with a cash-balance formula, with some grandfathered participants accruing benefits under a final average pay formula. Also, a number of employees and executives participate or have accrued benefits in other pension plans which are frozen as to new participants and/or new accruals. Under the cash-balance formula, each enrolled employee has a hypothetical account balance, which grows with interest and pay credits each year.

In addition, we sponsor a non-qualified excess benefit retirement plan that covers all U.S. employees whose tax-qualified plan benefit is limited by the Internal Revenue Code with respect to the amount of compensation that can be taken into account under a tax-qualified plan. The non-qualified plan makes up for the benefits that cannot be provided by the qualified plan as a result of those Internal Revenue Code limits by using the same cash-balance pension formula that applies under the qualified plan. The purpose of this plan is to ensure that employees who receive retirement benefits only through the qualified cash-balance plan and employees whose qualified plan benefit is limited by the Internal Revenue Code are treated substantially the

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same. The details of the existing plans are described more fully under “—Post-Employment Compensation—Pension Benefits for 2018” on page 59.

Deferred Compensation

In the United States, we offer a tax-qualified 401(k) plan to all of our employees and a non-qualified deferred compensation plan to employees who hold positions of vice president or above. Both plans are available to the named executive officers.

The non-qualified deferred compensation plan allows an eligible employee to defer receipt of a portion of his or her salary and/or annual bonus until a future date or dates elected by the employee. This plan provides an additional vehicle for employees to save for retirement on a tax-deferred basis. The deferred compensation plan is not funded by us and does not provide preferential rates of return. Participants have only an unsecured contractual commitment by us to pay amounts owed under that plan.

For further details, see “—Post-Employment Compensation—Non-Qualified Deferred Compensation for 2018” on page 61.

Other Benefits

We also provide other benefits described below to our named executive officers, which are not tied to any performance criteria. Rather, these benefits are intended to support objectives related to the attraction and retention of highly skilled executives and to ensure that they remain appropriately focused on their job responsibilities without unnecessary distraction.

Personal Security

We have established a security policy in response to a study prepared by an outside consultant that analyzed security risks to our CEO based on a number of factors, including travel patterns and past security threats. This security policy is periodically reviewed by an outside security consultant. In accordance with the security policy, a Company car and driver or other ground transportation arrangements are provided to our CEO for business and personal travel. These ground transportation services provide security for our CEO and enable him to conduct business on behalf of the Company while in transit. The methodologies we use to value the personal use of a Company car and driver and other ground transportation arrangements as a perquisite are described in footnote (5) to the “Summary Compensation Table”. In 2018, the aggregate incremental cost for personal use of a Company car and driver and other ground transportation provided pursuant to our security policy for our CEO was $9,657.

As required by the security policy, our CEO uses our aircraft for business and personal air travel. Use of our Company aircraft provides the necessary security for our CEO and enables him to be immediately available to respond to business priorities from any location and to use his travel time productively for the Company’s benefit. Our CEO reimburses the Company for personal travel on our aircraft in an amount equal to the incremental cost to the Company associated with such personal travel, provided that the amount does not exceed the maximum amount legally payable under FAA regulations, in which case our CEO reimburses such maximum amount.

Our CEO is responsible for all taxes due on any income imputed to him in connection with his personal use of Company-provided transportation.

In addition, under the security policy described above, we provide our CEO with additional home security enhancements and other protections. The methodology we use to value the incremental costs of providing additional home security enhancements and other protections to our CEO is the actual cost to us of the installation of home security and other equipment and any other incremental related expenses. In 2018, the aggregate incremental cost of security for our CEO was $3,037 as shown in footnote (5) to the “Summary Compensation Table”.

Other Transportation on Company Aircraft

We also on occasion provide transportation on Company aircraft for spouses or others, although under SEC rules, such spousal or other travel may not always be considered to be directly and integrally related to our business. Consistent with past practice, we only reimburse the named executive officers for any tax liabilities incurred with respect to travel by spouses or others if such travel is considered directly and integrally related to business.

Health Benefits; Treatment of Higher Paid and Lower Paid Employees

We subsidize health benefits more heavily for lower paid employees as compared to higher paid employees, such as the named executive officers.

Accordingly, our higher paid employees pay a significantly higher percentage of the cost of their health benefits than our lower paid employees.

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Additional Compensation Information

Compensation Comparison Group

Our Compensation Comparison Group includes: Key competitors in the property and casualty insurance industry — ●Allstate Corporation ●Chubb Ltd. ●Hartford Financial Services Group ●Progressive Corporation General financial services and life and health insurance companies of relatively similar size and complexity — ●Aetna, Inc.(1) ●American Express ●CIGNA Corporation ●Manulife Financial Corporation ●MetLife Inc. ●Prudential Financial Inc. We regard these companies as potential competition for executive talent.

(1)

In November 2018, CVS Health Corporation acquired Aetna, Inc. The peer group compensation data utilized by the Compensation Committee for purposes of analyzing fiscal 2018 compensation decisions included data for Aetna, Inc., as the Committee considered peer group compensation data for the 2017 performance year, the most recent year for which compensation data is publicly available. Comparisons of financial performance to the Compensation Comparison Group as of or for a period ended December 31, 2018 contained in this Compensation Discussion and Analysis do not include financial or other information for Aetna, Inc. due to its acquisition prior to December 31, 2018.

As of December 31, 2018, the Company was in approximately the 22nd percentile of the Compensation Comparison Group based on assets, net income and market capitalization, the 56th percentile based on return on equity and the 11th percentile based on revenues.

The Compensation Committee reviews the composition of our peer group annually to ensure that the companies constituting the peer group continue to provide meaningful and relevant compensation comparisons, and in light of the Aetna, Inc. merger, expects to make changes to the peer group in 2019.

Non-Competition Agreements

All members of our Management Committee, including the named executive officers, have signed non-competition agreements. The agreements provide that, upon an executive’s termination of employment, we may elect to, and in the event of Mr. Schnitzer’s voluntary termination for “good reason” or involuntary termination without “cause” within the 24-month period following a change in control, we have elected to, impose a six-month non-competition obligation upon the executive that would preclude the executive, subject to limited exceptions, from (1) performing services for or having any ownership interest in any entity or business unit that is primarily engaged in the property and casualty insurance business or (2) otherwise engaging in the property and casualty insurance business. This restriction will apply in the United States and any other country where we are physically present and engaged in the property and casualty insurance business as of the executive’s termination date.

If we elect to enforce the non-competition terms, and the executive complies with all of the obligations under the agreement, then the executive will be entitled to:

●	receive a lump sum payment at the end of the six-month restricted period equal to the sum of (1) six-months’ base salary plus (2) 50% of the executive’s average annual bonus for the prior two years plus (3) 50% of the aggregate grant date fair value of the executive’s average annual equity awards for the prior two years; and
●	reimbursement for the cost of continuing health benefits on similar economic terms as in place immediately prior to the executive’s termination date during the six-month non-competition period or payment of an equivalent amount, payable at the end of the six-month restricted period.

Timing and Pricing of Equity Grants

The Compensation Committee typically makes annual awards of equity at its meeting held in early February, which is set in advance as part of the Board’s annual calendar of scheduled meetings. The Compensation Committee has in the past, and may in the future, make limited grants of equity on other dates in order to retain key employees, to compensate an employee in connection with a promotion or to compensate newly hired executives for equity or other benefits lost upon termination of their previous employment or to otherwise induce them to join us.

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Under our Governance Guidelines, the Compensation Committee may make off-cycle equity grants only on previously determined dates in each calendar month, which will be either (1) the date of a regularly scheduled Board or Compensation Committee meeting, (2) the next succeeding 15th day of the calendar month (or if the 15th is not a business day, the business day immediately preceding the 15th), or (3) in the case of grants in connection with new hires and/or promotions, on, or within 15 days of, the first day of employment or other personnel change. The grant date of equity grants to executives is the date of Compensation Committee approval. As discussed above, the exercise price of stock option grants is the closing market price of our common stock on the date of grant.

As discussed under “Governance of Your Company—Committees of the Board and Meetings—Compensation Committee” on page 11, the Compensation Committee has delegated to the CEO, subject to the prior written consent of our Executive Vice President and General Counsel, the authority to make limited “off-cycle” grants to employees who are not Committee Approved Officers on the grant dates established by our Governance Guidelines. For these grants, as discussed above, the grant date is the date of such approval, and the exercise price of all stock options is the closing market price of our common stock on the date of grant.

Under the 2014 Stock Incentive Plan, stock options cannot be “repriced” unless such repricing is approved by our shareholders. See “Governance of Your Company—Dating and Pricing of Equity Grants” on page 18.

We monitor and periodically review our equity grant policies to ensure compliance with plan rules and applicable law. We do not have a program, plan or practice to time our equity grants in coordination with the release of material, non-public information.

Severance and Change in Control Agreements

All of our current senior executives, other than Mr. Schnitzer, are covered by our severance plan. Mr. Schnitzer’s letter agreement, discussed at greater length below under “—Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control—Summary of Key Agreements” on page 65, contains severance benefits that are triggered under some circumstances, including some circumstances related to a change in control of the Company.

Each of our named executive officers, other than Mr. Schnitzer, has entered into an agreement with us pursuant to which the named executive officer is granted enhanced severance benefits in exchange for agreeing to non-solicitation and non-disclosure provisions. Under the terms of such agreements, these named executive officers are eligible to receive a severance benefit if they are involuntarily terminated due to a reduction in force or for reasons other than “cause” or if they are asked to take a substantial demotion. The terms of these agreements, including a description of the severance package included in Mr. Kess’s offer letter, are described more fully under “—Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control—Summary of Key Agreements” on page 65.

In addition, based on the advice of its compensation consultant and consistent with market practice, the equity awards made in February 2019 and 2018, including those made to the named executive officers, provide for waiver of service vesting conditions in the event of a voluntary termination for “good reason” or an involuntary termination without “cause” within 24 months of a change in control.

The Compensation Committee believes that these severance agreements and, in some circumstances, change in control arrangements are necessary to attract and retain the talent necessary for our long-term success. The Compensation Committee also believes that these severance and change in control programs allow our executives to focus on duties at hand and provide security should their employment be terminated as a result of an involuntary termination without cause or a constructive discharge or following a change of control, as applicable. For these reasons, and based on advice of the Compensation Committee’s independent compensation consultant, the Compensation Committee believes that these arrangements are appropriate and consistent with similar provisions agreed to by members of our Compensation Comparison Group and their executive officers.

None of the severance and change in control agreements with the named executive officers include excise tax gross-up protections.

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Stock Ownership Guidelines, Anti-Hedging and Pledging Policies, and Other Trading Restrictions

We maintain an executive stock ownership policy under which executives are expected to accumulate and retain specified levels of ownership of our equity securities until termination of employment, so as to further align the interests of management and shareholders. The Compensation Committee developed this policy based in part on an analysis of policies instituted at our peer competitors. Under the policy, executives have target ownership levels as follows:

The stock ownership levels of all persons subject to this policy are calculated on a quarterly basis. In determining an executive’s share ownership level, the following are included:

●	100% of shares held directly by the executive;
●	100% of shares held indirectly through our 401(k) Savings Plan or deferred compensation plan;
●	50% of unvested performance shares (assuming the target number of performance shares will vest); and
●	a number of shares with a market value equal to 50% of any unrealized appreciation in stock options, whether vested or unvested.

As of December 31, 2018, each of our named executive officers was in compliance with our stock ownership policy.

We have a securities trading policy that sets forth guidelines and restrictions applicable to employees’ and directors’ transactions involving our stock. Among other things, this policy prohibits our employees and directors from engaging in short-term or speculative transactions involving our stock, including purchasing our stock on margin, short sales of our stock (that is, selling stock that is not owned and borrowing shares to make delivery), buying or selling puts, calls or other derivatives related to our stock and arbitrage trading or day trading of our stock. Directors and executive officers are not allowed to pledge Company stock without the consent of the Company, and no shares beneficially owned by them are pledged.

Recapture/Forfeiture Provisions

Our Board has adopted a policy requiring the reimbursement and/or cancellation of all or a portion of any incentive cash bonus or stock-based incentive compensation awarded after February 1, 2010 to members of our Management Committee or other officers who are subject to Section 16 of the Exchange Act when the Compensation Committee has determined that all of the following factors are present:

●	the award and/or payout of an award was predicated upon the achievement of financial results that were subsequently the subject of a restatement;
●	the employee engaged in fraud or willful misconduct that was a significant contributing factor in causing the restatement; and
●	a lower award and/or payout of an award would have been made to the employee based upon the restated financial results.

Incentive compensation is granted subject to the policy that, in each such instance described above, the Company will, to the extent permitted by applicable law and subject to the discretion and approval of the Compensation Committee, taking into account such facts and circumstances as it deems appropriate, including the costs and benefits of doing so, seek to recover the employee’s cash bonus and/or stock-based incentive compensation paid or issued to the employee in excess of the amount that would have been paid or issued based on the restated financial results. If the Compensation Committee determines, however, that, after recovery of an excess amount from an employee, the employee is nonetheless unjustly enriched, it may seek recovery of more than such excess amount up to the entire amount of the bonus or other incentive compensation.

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In addition, under the terms of our executive equity award agreements, in the event that the employment of an executive, including the named executive officers, is terminated for gross misconduct or for cause, as determined by the Compensation Committee, all outstanding vested and unvested awards are cancelled upon his or her termination.

Further, in connection with equity awards, the named executive officers and other recipients of equity awards are parties to an agreement that provides for the forfeiture of unexercised or unvested awards and the recapture by us of any compensatory value, including any amount included as compensation in his or her taxable income, that the former executive received or realized by way of payment, exercise or vesting during the period beginning 12 months prior to the date of termination of employment with us, and ending 12 months after the date of the termination of employment with us, if during the 12-month period following his or her termination, the executive:

●	fails to keep all confidential information strictly confidential;
●	uses confidential information to solicit or encourage any person or entity that is a client, customer, policyholder, vendor, consultant or agent of ours to discontinue business with us after accepting a position with a direct competitor;
●	is directly and personally involved in the negotiation or solicitation of the transfer of business away from us; or
●	solicits, hires or otherwise attempts to affect the employment of any person employed by us at any time during the last three months of the executive’s employment or thereafter, without our consent.

Shareholder Engagement

Management has had numerous conversations with investors about compensation and governance practices, and management has reported on those conversations to the Compensation Committee. Specifically, as described in “Shareholder Engagement” on page 19 of this Proxy Statement, during 2018, management contacted our largest shareholders and received feedback from beneficial owners of shares aggregating more than 40% of our outstanding shares. After considering our conversations with investors, in which shareholders were generally supportive of our compensation programs, as well as conversations with proxy advisory firms and the results of the shareholder advisory vote on executive compensation in 2018, where more than 84% of the shares voting “FOR” or “AGAINST” at the meeting voted in favor of the compensation paid to our named executive officers, the Compensation Committee concluded that our executive compensation programs are performing as intended and, consistent with the advice of its independent compensation consultant, determined not to make changes to the core structure of our executive compensation programs.

OUTREACH		TOPICS DISCUSSED		COMMUNICATION WITH THE BOARD
During 2018, management contacted our largest shareholders.		Key topics included: ✓Executive compensation ✓Board tenure, diversity, and structure ✓Workforce Diversity ✓Gender pay equity ✓Climate change		The Corporate Secretary – who participates in shareholder engagement – shares feedback with the Nominating and Governance Committee and the Compensation Committee, and this feedback is reported to the entire board by the Chairs of these committees.

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Total Direct Compensation for 2016-2018 (Supplemental Table)

The following table shows the base salary actually earned during each of the last three years as well as annual cash bonuses paid and equity awards granted to our named executive officers in February in respect of the immediately preceding performance year.

Name and Principal Position		Year		Salary ($)		Bonus ($)		Equity Awards ($)		Total ($)		Increase (Decrease) from Prior Year (%)
Alan D. Schnitzer		2018		1,000,000		5,200,000		9,000,000		15,200,000		9
Chairman and		2017		1,000,000		4,700,000		8,200,000		13,900,000		(9	)
Chief Executive Officer		2016		1,000,000		5,200,000		9,000,000		15,200,000		67	(1)
Jay S. Benet		2018		807,989		2,320,000		2,175,000		5,302,989		(9	)(2)
Vice Chairman and former		2017		850,000		2,550,000		2,400,000		5,800,000		(7	)
Chief Financial Officer		2016		825,096		2,775,000		2,625,000		6,225,096		(2	)
Daniel S. Frey		2018		461,552		1,000,000		1,625,000		3,086,552		n/a
Executive Vice President and
Chief Financial Officer
William H. Heyman		2018		850,000		3,000,000		2,550,000		6,400,000		6
Vice Chairman and		2017		850,000		2,800,000		2,400,000		6,050,000		(7	)
Chief Investment Officer		2016		825,096		3,050,000		2,625,000		6,500,096		(3	)
Avrohom J. Kess(3)		2018		850,000		2,625,000		2,550,000		6,025,000		5
Vice Chairman and		2017		850,000		2,500,000		2,400,000		5,750,000		n/a
Chief Legal Officer
Gregory C. Toczydlowski		2018		700,000		2,300,000		1,750,000		4,750,000		n/a
Executive Vice President and President,
Business Insurance

(1)	2016 was Mr. Schnitzer’s first full year as CEO.
(2)	The decrease reflects Mr. Benet’s transition out of the role as CFO, effective September 1, 2018, and his continued service on the senior leadership team as Vice Chairman.
(3)	Mr. Kess’s compensation for 2016 is not included in this table because his employment with the Company did not commence until December 30, 2016. Accordingly, his 2016 compensation was primarily related to his recruitment to the Company and the forfeiture of his pension arrangements resulting from his relinquishment of his prior partnership interest, and accordingly is not meaningful for comparative purposes.

The Purpose Behind This Supplemental Table

This Supplemental Table has been included to provide investors with additional compensation information for the last three performance years. As part of reaching its compensation decisions for a performance year, the Compensation Committee refers to this data. Accordingly, this supplemental information enables investors to better understand the actions of the Compensation Committee with respect to total direct compensation for a performance year. This Supplemental Table is not, however, intended to be a substitute for the information provided in the “Summary Compensation Table” on page 52, which has been prepared in accordance with the SEC’s disclosure rules.

The Differences Between this Supplemental Table and the Summary Compensation Table

The information contained in this Supplemental Table differs substantially from the total direct compensation information contained in the “Summary Compensation Table” for the relevant year because the stock awards and option awards columns for a particular year in the “Summary Compensation Table” report awards actually granted in that fiscal year (not equity awards granted in respect of that performance year). For example, for 2018, the “Summary Compensation Table” includes awards made in February 2018 in respect of the 2017 performance year, but does not include awards made in February 2019 in respect of the 2018 performance year. On the other hand, the “2018” rows in the Supplemental Table presented above include stock-based grants made in February 2019 in respect of the 2018 performance year and not the stock-based grants made in February 2018 in respect of the 2017 performance year.

Compensation Committee Report

The Compensation Committee has discussed and reviewed the foregoing “Compensation Discussion and Analysis” with management. Based upon this review and discussion, the Compensation Committee recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in this Proxy Statement and incorporated by reference into our Annual Report on Form 10-K.

Submitted by the Compensation Committee of the Company’s Board of Directors:

Donald J. Shepard (Chair)		Kenneth M. Duberstein		Philip T. Ruegger III
Janet M. Dolan		Clarence Otis Jr.

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Summary Compensation Table

The following table provides summary information concerning compensation paid or accrued by us to our Chairman and Chief Executive Officer, our Vice Chairman and former Chief Financial Officer, our Executive Vice President and Chief Financial Officer and each of our three other most highly compensated executive officers who served in such capacities at December 31, 2018. We refer to these individuals collectively as the “named executive officers”.

Name and Principal Position		Year		Salary ($)		Bonus ($)		Stock Awards(1) ($)		Option Awards(2) ($)		Non-Equity Incentive Plan Compensation(3) ($)		Change in Pension Value and Non- Qualified Deferred Compensation Earnings(4) ($)		All Other Compensation(5) ($)		Total ($)
Alan D. Schnitzer Chairman and Chief Executive Officer		2018		1,000,000		—		4,920,031		3,279,992		5,200,000		208,246		39,944		14,648,213
		2017		1,000,000		—		5,399,976		3,599,987		4,700,000		455,777		78,019		15,233,759
		2016		1,000,000		—		3,000,013		2,000,015		5,200,000		280,194		77,897		11,558,119
Jay S. Benet Vice Chairman and former Chief Financial Officer		2018		807,989		—		1,440,050		959,999		2,320,000		359,838		8,565		5,896,441
		2017		850,000		—		1,575,023		1,050,000		2,550,000		359,320		6,702		6,391,045
		2016		825,096		—		1,574,970		1,050,005		2,775,000		365,569		9,722		6,600,362
Daniel S. Frey Executive Vice President and Chief Financial Officer		2018		461,552		—		185,510		117,005		1,000,000		31,333		11,500		1,806,900
William H. Heyman Vice Chairman and Chief Investment Officer		2018		850,000		—		1,440,050		959,999		3,000,000		363,028		8,464		6,621,541
		2017		850,000		—		1,575,023		1,050,000		2,800,000		363,243		6,500		6,644,766
		2016		825,096		—		1,574,970		1,050,005		3,050,000		361,806		7,929		6,869,806
Avrohom J. Kess(6) Vice Chairman and Chief Legal Officer		2018		850,000		—		1,440,050		959,999		2,625,000		128,054		6,500		6,009,603
		2017		850,000		—		1,539,954		1,019,992		2,500,000		—		11,500		5,921,446
		2016		3,257		500,000		3,000,025		499,892		—		—		4,711,730		8,714,904
Gregory C. Toczydlowski Executive Vice President and President, Business Insurance		2018		700,000		—		1,050,037		699,998		2,300,000		97,870		7,370		4,855,275

(1)

The dollar amounts represent the aggregate grant date fair value of stock awards granted during each of the years presented. The grant date fair value of an award is measured in accordance with FASB ASC Topic 718 using the assumptions discussed in Note 13 to our financial statements for the fiscal year ended December 31, 2018 included in the Company's Annual Report on Form 10-K filed with the SEC on February 14, 2019 (the “Form 10-K”), without taking into account estimated forfeitures. Stock awards for 2016 for Mr. Kess reflect restricted stock units with a grant date fair value of $3,000,025 and stock awards for 2017 for Mr. Kess include restricted stock units with a grant date fair value of $9,949. Stock awards for Mr. Frey include restricted stock units with a grant date fair value of $10,011. All other stock awards during the years presented reflect performance shares. With respect to the performance shares, the estimate of the grant date fair value determined in accordance with FASB ASC Topic 718 assumes the vesting of 100% of the performance shares awarded. Assuming the highest level of performance is achieved (which would result in the vesting of 150% of the performance shares granted), the aggregate grant date fair value of the performance shares reflected in the table above would be:

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Executive Compensation  |  Summary Compensation Table

	The dividend equivalents attributable to performance shares are deemed “reinvested” in additional performance shares and will only be distributed upon the vesting, if any, of the performance shares in accordance with the performance share award terms. In accordance with the SEC's rules, dividend equivalents are not required to be reported because the value of such future dividends, as well as the value of future cash dividends on restricted stock units, are factored into the grant date fair value of the awards. For a discussion of specific stock awards granted during 2018, see “Grants of Plan-Based Awards in 2018” below and the narrative discussion that follows.
(2)	The dollar amounts represent the grant date fair value of stock option awards granted during each of the years presented. The grant date fair value of a stock option award is measured in accordance with FASB ASC Topic 718 using the assumptions discussed in Note 13 to our financial statements for the fiscal year ended December 31, 2018 included in the Company's Form 10-K, without taking into account estimated forfeitures. For a discussion of specific stock option awards granted during 2018, see “Grants of Plan-Based Awards in 2018” below and the narrative discussion that follows.
(3)	Reflects annual cash incentive compensation paid in 2019 for performance year 2018, cash incentive compensation paid in 2018 for performance year 2017 and cash incentive compensation paid in 2017 for performance year 2016, respectively. For a discussion of the Company's annual cash bonus determinations, see “Compensation Discussion and Analysis—Compensation Elements and Decisions—Annual Cash Bonus”.
(4)	These amounts represent the aggregate change in actuarial present value of accumulated pension benefits for each of the years presented, using the same pension plan measurement date used for financial statement reporting purposes. We do not provide any of our executives with any above-market or preferential earnings on non-qualified deferred compensation. For additional information about pension benefits, see “Post-Employment Compensation—Pension Benefits for 2018” below.
(5)	For 2018, “All Other Compensation” for Mr. Schnitzer includes $9,657 for personal use of a Company car and driver and other ground transportation arrangements, calculated as described below, and $3,037 of personal security expenses incurred on his behalf pursuant to the Company's executive security program.
	Pursuant to our security policy, in 2018, we provided a car and driver or other ground transportation arrangements to Mr. Schnitzer for business and personal travel. We calculated the incremental cost to us for the personal use of any Company car and driver (including commuting and business travel not considered directly and integrally related to the performance of the executive's duties) based on the operating costs, such as fuel and maintenance, related to such travel. Compensation and benefits for the employee drivers are not included in the calculation of incremental cost because the employee drivers are members of our security staff and, consistent with our executive security policy, we would have otherwise incurred such costs for business purposes, whether or not the driver was available to Mr. Schnitzer for personal travel. The incremental costs of personal trips using other ground transportation arrangements, such as car services, are valued at the actual cost to us.
	Mr. Schnitzer uses Company aircraft for business and personal air travel as required by our security policy. Mr. Schnitzer reimburses the Company for personal travel on Company aircraft in an amount equal to the incremental cost to the Company associated with such travel up to the maximum amount legally payable under FAA regulations. Incremental costs in excess of the amount legally payable under FAA regulations in the amount of $14,898 is included in “All Other Compensation” for 2018.
	In connection with his commencement of employment with the Company in 2016, Mr. Kess was awarded $4,700,000 in the form of a credit to a non-qualified deferred compensation account in recognition of the forfeiture by Mr. Kess of certain pension benefits at his prior employer. “All Other Compensation” for Mr. Kess in 2016 also includes legal expenses incurred in connection with the negotiation of his offer letter.
	For more information about these perquisites, see “Compensation Discussion and Analysis—Other Compensation—Other Benefits”.
(6)	In connection with the commencement of his employment with the Company in December 2016, Mr. Kess was awarded a $500,000 cash bonus. Performance-based annual cash bonuses are reported in the “Non-Equity Incentive Plan Compensation” column.

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Executive Compensation  |  Grants of Plan-Based Awards in 2018

Grants of Plan-Based Awards in 2018

The following table provides information on stock awards and stock options granted in 2018 to each of our named executive officers.

Name		Grant Date		Estimated Future Payouts Under Non-Equity Incentive Plan Awards Target(1) ($)		Estimated Future Payouts Under Equity Incentive Plan Awards(2)						All Other Stock Awards – Number of Shares of Stock or Units(3) (#)		All Other Option Awards: Number of Securities Underlying Options(4) (#)		Exercise or Base Price of Option Awards ($/Sh)		Grant Date Fair Value of Stock and Option Awards(5) ($)
						Threshold (#)		Target (#)		Maximum (#)
Alan D. Schnitzer		2/06/2018				17,466		34,931		52,397								4,920,031
		2/06/2018												162,927		140.85		3,279,992
				n/a
Jay S. Benet		2/06/2018				5,112		10,224		15,336								1,440,050
		2/06/2018												47,686		140.85		959,999
				n/a
Daniel S. Frey		2/06/2018				623		1,246		1,869								175,499
		2/06/2018												5,812		140.85		117,005
		9/14/2018										77						10,011
				n/a
William H. Heyman		2/06/2018				5,112		10,224		15,336								1,440,050
		2/06/2018												47,686		140.85		959,999
				n/a
Avrohom J. Kess		2/06/2018				5,112		10,224		15,336								1,440,050
		2/06/2018												47,686		140.85		959,999
				n/a
Greg C. Toczydlowski		2/06/2018				3,728		7,455		11,183								1,050,037
		2/06/2018												34,771		140.85		699,998
				n/a

(1)	Our annual Senior Executive Performance Plan does not include thresholds, targets or maximums that are determinable at the beginning of the performance year. For additional information regarding annual cash bonuses, see “Compensation Discussion and Analysis—Compensation Elements and Decisions—Annual Cash Bonus” above. The actual cash bonuses paid to our named executive officers are disclosed in the “Summary Compensation Table” in the “Non-Equity Incentive Plan Compensation” column.
(2)	Represents performance shares granted as part of the annual long-term equity grant with respect to performance year 2017. All performance shares were granted under the Company's 2014 Stock Incentive Plan. Performance shares represent the right to earn shares of our common stock based on our attainment of specified performance goals, as described above under “Compensation Discussion and Analysis—Compensation Elements and Decisions—Long-Term Stock Incentives—Performance Shares”. As described in more detail in that section, for awards granted in 2018, if our return on equity (as defined in the award agreement) over the three-year performance period meets the minimum threshold of 8%, then 50% of the number of performance shares awarded and accumulated dividend equivalents will vest. If our return on equity over the three-year performance period is 10%, then 100% of the number of shares awarded and accumulated dividend equivalents will vest. If our return on equity over the three-year performance period equals or exceeds 16%, then a maximum of 150% of the number of shares awarded and accumulated dividend equivalents will vest. The estimated future payouts of performance shares in the table above do not include additional shares that may be allocated to recipients of performance shares as a result of the phantom reinvestment of dividend equivalents on unvested performance shares, but the value of such additional shares is factored into the grant date fair values of the performance shares in the table above.
(3)	Represents restricted stock units granted to Mr. Frey in connection with him entering into a non-competition agreement with the Company at the time he was appointed CFO. The restricted stock units were granted under the Company's 2014 Stock Incentive Plan. The value of future cash dividends on restricted stock units is factored into the grant date fair values of the restricted stock units in the table above.
(4)	Represents stock options granted as part of the annual long-term equity grant with respect to performance year 2017. All stock options were granted under the Company's 2014 Stock Incentive Plan.
(5)	The amount represents the grant date fair value of stock and option awards measured in accordance with the guidance in FASB ASC Topic 718, utilizing the assumptions discussed in Note 13 to our financial statements for the fiscal year ended December 31, 2018 included in the Company's Form 10-K, without taking into account estimated forfeitures. With respect to the performance shares, the estimate of the grant date fair value determined in accordance with FASB ASC Topic 718 assumes the vesting of 100% of the performance shares awarded.

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Executive Compensation  |  Narrative Supplement to Summary Compensation Table and Grants of Plan-Based Awards in 2018

Narrative Supplement to Summary Compensation Table and Grants of Plan-Based Awards in 2018

Employment Arrangements

Mr. Schnitzer’s Employment Arrangement

On August 4, 2015, the Company entered into an employment letter with Mr. Schnitzer pursuant to which he serves as our Chief Executive Officer with an annual base salary of $1 million. As described more fully in “Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control—Summary of Key Agreements—Mr. Schnitzer’s Employment Letter”, if Mr. Schnitzer’s employment is terminated by us without “cause” or he resigns for “good reason” (each as defined in his agreement), he would become entitled to receive specified additional benefits. Additionally, Mr. Schnitzer would be entitled to specified special protections with respect to his equity awards following a “change in control”.

Mr. Schnitzer used our corporate aircraft for business and personal travel in accordance with our security policy. See the detailed discussion regarding Mr. Schnitzer’s use of the corporate aircraft on page 46 of the “Compensation Discussion and Analysis—Other Compensation—Other Benefits—Personal Security” section.

Mr. Kess’s Offer Letter

On December 19, 2016, the Company entered into an offer letter with Mr. Kess, pursuant to which he serves as our Vice Chairman and Chief Legal Officer, with an annual base salary of $850,000. Mr. Kess is also eligible to receive an annual equity grant on terms and conditions similar to those applicable to other senior executives of the Company at the discretion of the Compensation Committee.

In recognition of his forfeiture of certain pension benefits under his previous employer’s plan, the offer letter entitled Mr. Kess to incentives on December 30, 2016 (the date he commenced employment), consisting of:

●	$500,000 in cash;
●	restricted stock units with a grant date value of $3,000,000 that vest in three equal annual installments on December 30, 2017, 2018 and 2019;
●	stock options with a grant date value of $500,000 that have an exercise price equal to the closing price per share of our common stock on December 30, 2016 ($122.42), and vest in three equal annual installments on December 30, 2017, 2018 and 2019; and
●	a credit of $4,700,000 in a deferred compensation account under our Deferred Compensation Plan (discussed under “Post-Employment Compensation—Non-Qualified Deferred Compensation for 2018—Deferred Compensation Plan” below).

In addition, on February 9, 2017, as contemplated by his offer letter, Mr. Kess was granted performance shares with a grant date value of $1,530,000 and stock options with a grant date value of $1,020,000. Mr. Kess was also awarded fully vested restricted stock units on January 13, 2017 with a grant date value of $10,000 as consideration for entering into a non-competition agreement with the Company.

See “Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control” for a discussion of the provisions of Mr. Kess’s 2016 restricted stock unit award and 2016 and 2017 stock option awards in the event Mr. Kess’s employment is terminated for “cause” or he resigns without “good reason” (each as defined in his offer letter).

As described more fully in “Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control”, Mr. Kess would become entitled to receive specified benefits under our severance plan upon a qualifying termination of his employment.

Terms of Equity-Based Awards

Vesting Schedule

Other than described above with respect to the stock options and restricted stock units granted to Mr. Kess in connection with his commencement of employment with the Company and the fully vested restricted stock units granted to Messrs. Kess and Frey in connection with their entering into non-competition agreements with the

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Executive Compensation  |  Option Exercises and Stock Vested in 2018

Company, stock option and restricted stock unit awards vest in full three years after the date of grant. Performance shares reflected in the tables and accumulated dividend equivalents vest at the end of a three-year performance period if, and to the extent, performance goals are attained, as more fully described above in “Compensation Discussion and Analysis—Compensation Elements and Decisions—Long-Term Stock Incentives—Performance Shares”.

Forfeiture and Post-Employment Treatment

Unvested shares underlying stock option, restricted stock unit and performance share awards are generally forfeited upon termination of employment except in specific cases for which different treatment is provided (see footnote (2) to the “Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control Table” on page 64 for a discussion regarding different treatments).

Option Exercise Price

Stock options have an exercise price equal to the closing price of our common stock on the date of grant.

Dividends

Dividend equivalents attributable to performance shares are deemed “reinvested” in additional performance shares. The additional shares allocated to recipients of performance shares as a result of the phantom reinvestment of dividend equivalents on unvested performance shares will only be distributed upon the vesting, if any, of such performance shares in accordance with the performance share award terms. Cash dividends are paid with respect to restricted stock units at the same time and in the same amounts as are paid on shares of common stock.

Option Exercises and Stock Vested in 2018

The following table provides information regarding the values realized by our named executive officers upon the exercise of stock options and the vesting of stock awards in 2018.

		Option Awards				Stock Awards
Name		Number of Shares Acquired on Exercise (#)		Value Realized on Exercise(1) ($)		Number of Shares Acquired on Vesting(2) (#)		Value Realized on Vesting(3) ($)
Alan D. Schnitzer		69,575		5,821,953		33,140		3,968,554
Jay S. Benet		53,246		3,053,326		17,398		2,083,442
Daniel S. Frey		5,271		216,249		1,568		188,516
William H. Heyman		7,022		250,992		17,398		2,083,442
Avrohom J. Kess		—		—		8,169		970,232
Gregory C. Toczydlowski		28,975		2,573,493		9,941		1,190,538

(1)	Value realized on exercise is based on the gain, if any, equal to the difference between the fair market value of the stock acquired upon exercise on the exercise date less the exercise price, multiplied by the number of options exercised.
(2)	Except as described below for Mr. Frey and Mr. Kess, the shares acquired upon vesting represent performance shares that are treated as vested on December 31, 2018, the last day of the relevant three-year performance period, including the following shares in respect of phantom dividend equivalents on such performance shares: Mr. Schnitzer (2,186 shares), Mr. Benet (1,147 shares), Mr. Frey (98 shares), Mr. Heyman (1,147 shares) and Mr. Toczydlowski (655 shares). With respect to Mr. Frey, amounts also include 77 restricted stock units granted pursuant to the terms of a non-competition agreement with the Company. These restricted stock units were fully vested on the grant date; however, shares underlying the units will not be distributed until the earlier of (a) six months after any future separation or (b) September 14, 2021. The amounts for Mr. Kess represent 8,169 shares acquired upon the vesting of restricted stock units that were granted in connection with his commencement of employment with the Company in December 2016, the terms of which are discussed above in “Narrative Supplement to Summary Compensation Table and Grants of Plan-Based Awards in 2018—Employment Arrangements—Mr. Kess’s Offer Letter”.
(3)	The value realized on vesting is based on the closing price of our common stock on the NYSE on the vesting date. If vesting occurs on a day on which the NYSE is closed, the value realized on vesting is based on the closing price on the last trading day prior to the vesting date.

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Executive Compensation  |  Outstanding Equity Awards at December 31, 2018

Outstanding Equity Awards at December 31, 2018

The following table provides information with respect to the option awards and stock awards held by the named executive officers at December 31, 2018.

		Option Awards												Stock Awards
																					Equity Incentive Plan Awards:
Name		Option Award Grant Date		Number of Securities Underlying Unexercised Options(1) (#)						Option Exercise Price ($)		Option Expiration Date		Stock Award Grant Date		Number of Unearned Shares or Units of Stock That Have Not Vested (#)			Market Value of Shares or Units of Stock That Have Not Vested(2) ($)		Number of Unearned Shares, Units or Other Rights That Have Not Vested(3) (#)		Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(2) ($)
				Exercisable			Unexercisable
Alan D. Schnitzer		2/07/2012		66,228			—			59.74		2/07/2022
		2/05/2013		53,246			—			78.65		2/05/2023
		2/04/2014		60,979			—			80.35		2/04/2024
		2/03/2015		66,522			—			106.04		2/03/2025
		2/02/2016		—			150,829			106.03		2/02/2026
		2/09/2017		—			222,901			118.78		2/09/2027
														2/09/2017							71,413		8,551,765
		2/06/2018		—			162,927			140.85		2/06/2028
														2/06/2018							53,657		6,425,439
Jay S. Benet		2/04/2014		60,979			—			80.35		2/04/2024
		2/03/2015		66,522			—			106.04		2/03/2025
		2/02/2016		—			79,185			106.03		2/02/2026
		2/09/2017		—			65,013			118.78		2/09/2027
														2/09/2017							20,829		2,494,312
		2/06/2018		—			47,686			140.85		2/06/2028
														2/06/2018							15,705		1,880,670
Daniel S. Frey		2/02/2016		—			6,787			106.03		2/02/2026
		2/09/2017		—			5,573			118.78		2/09/2027
														2/09/2017							1,786		213,879
		2/06/2018		—			5,812			140.85		2/06/2028
														2/06/2018							1,914		229,198
William H. Heyman		2/03/2015		59,500			—			106.04		2/03/2025
		2/02/2016		—			79,185			106.03		2/02/2026
		2/09/2017		—			65,013			118.78		2/09/2027
														2/09/2017							20,829		2,494,312
		2/06/2018		—			47,686			140.85		2/06/2028
														2/06/2018							15,705		1,880,670
Avrohom J. Kess		12/30/2016		20,238	(4)		10,120	(4)		122.42		12/30/2026
														12/30/2016		8,169	(5)		978,238
		2/09/2017		—			63,155			118.78		2/09/2027
														2/09/2017							20,234		2,423,019
		2/06/2018		—			47,686			140.85		2/06/2028
														2/06/2018							15,705		1,880,670
Gregory C. Toczydlowski		2/05/2013		23,405			—			78.65		2/05/2023
		2/04/2014		31,941			—			80.35		2/04/2024
		2/03/2015		38,013			—			106.04		2/03/2025
		2/02/2016		—			45,249			106.03		2/02/2026
		2/09/2017		—			43,342			118.78		2/09/2027
														2/09/2017							13,886		1,662,874
		2/06/2018		—			34,771			140.85		2/06/2028
														2/06/2018							11,452		1,371,322

(1)	Stock options are exercisable 100% on the third anniversary of the stock option award grant date, other than with respect to the stock options granted to Mr. Kess described in footnote (4) below.
(2)	The market value is based on the closing price on the NYSE of our common stock on December 31, 2018, the last trading day of 2018 ($119.75), multiplied by the number of outstanding performance shares or restricted stock units.

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Executive Compensation  |  Post-Employment Compensation

(3)	The number of shares reflected for each of the named executive officers represents the sum of (a) the maximum number of performance shares and (b) the additional shares that have been allocated to the named executive officer through December 31, 2018 as a result of the phantom reinvestment of dividend equivalents on the maximum number of performance shares. We have reflected the maximum number of performance shares for each named executive officer because (a) results for 2017 and 2018, the first and second year of the three-year performance period for the February 9, 2017 awards, were above target and (b) results for 2018, the first year of the three-year performance period for the February 6, 2018 awards, were also above target. The actual numbers of shares that will be distributed with respect to the 2017 and 2018 awards are not yet determinable. The awards granted on February 9, 2017 vest in proportion to actual performance over the three-year performance period ending on December 31, 2019, and the awards granted on February 6, 2018 vest in proportion to actual performance over the three-year performance period ending on December 31, 2020. For purposes of this column, fractional shares have been rounded to the nearest whole share. See the description of performance shares in the “Compensation Discussion and Analysis—Compensation Elements and Decisions—Long-Term Stock Incentives—Performance Shares” section.
(4)	Represents stock options granted to Mr. Kess in connection with his commencement of employment with the Company under the terms of his offer letter. The stock options become exercisable in three equal annual installments on the anniversaries of the grant date.
(5)	Represents restricted stock units granted to Mr. Kess in connection with his commencement of employment with the Company under the terms of his offer letter. The award vests in three equal annual installments on the anniversaries of the grant date.

Post-Employment Compensation

The Company has four active retirement plans:

●	A qualified 401(k) Savings Plan, which is referenced under “Compensation Discussion and Analysis—Other Compensation—Deferred Compensation” on page 46;
●	A qualified pension plan (the “Pension Plan”), which is discussed under “—Pension Benefits for 2018” below;
●	A non-qualified pension restoration plan that is a component of the Benefit Equalization Plan described below (the “Pension Restoration Plan”), which is discussed under “—Pension Benefits for 2018” below; and
●	A non-qualified deferred compensation plan (the “Deferred Compensation Plan”), which is discussed under “—Non-Qualified Deferred Compensation for 2018” below.

The Company has two inactive retirement plans from which benefits are still payable to one or more named executive officers but under which no additional benefits are being earned (other than earnings credits as described below):

●	A non-qualified pension plan maintained by TPC prior to the Merger that is a component of the Benefit Equalization Plan (the “TPC Benefit Equalization Plan”), which is discussed under “—Pension Benefits for 2018” below; and
●	A non-qualified deferred compensation plan maintained by The St. Paul prior to the Merger that is a component of the Benefit Equalization Plan (the “Executive Savings Plan”), which is discussed under “—Non-Qualified Deferred Compensation for 2018” below.

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Executive Compensation  |  Post-Employment Compensation

Pension Benefits for 2018

The following table provides information regarding the pension benefits for our named executive officers under the Company’s pension plans. The material terms of the plans are described following the table.

Name		Plan Name		Number of Years Credited Service(1)		Present Value of Accumulated Benefit(2) ($)		Payments During Last Fiscal Year ($)
Alan D. Schnitzer		Pension Plan		11		129,574		—
		Pension Restoration Plan		11		1,757,067		—
Jay S. Benet		Pension Plan		28		711,148		—
		Pension Restoration Plan		28		3,059,407		—
		TPC Benefit Equalization Plan(3)		11		290,178		—
Daniel S. Frey		Pension Plan		16		192,937		—
		Pension Restoration Plan		16		226,593		—
William H. Heyman		Pension Plan		28		335,801		—
		Pension Restoration Plan		28		3,565,396		—
Avrohom J. Kess		Pension Plan		2		10,431		—
		Pension Restoration Plan		2		117,623		—
Gregory C. Toczydlowski		Pension Plan		29		323,224		—
		Pension Restoration Plan		29		1,290,646		—
		TPC Benefit Equalization Plan(3)		11		9,787		—

(1)	Credited service includes (as applicable) service for time worked at the Company plus TPC, Citigroup and certain of its affiliates and predecessors (prior to August 20, 2002) and The St. Paul. Number of years of credited service represents actual years of service. We do not have a policy with respect to granting extra years of credited service.
(2)	For named executive officers who have not attained age 65, the present value of accumulated benefit is calculated by projecting the qualified and non-qualified cash-balance accounts reflected in the tables below forward to age 65 by applying a 4.01% interest rate (except for some sub-accounts which use a 6.00% rate) and then discounting back to December 31, 2018 using a discount rate of 4.39% for the Pension Plan and 4.33% for the Pension Restoration Plan and the TPC Benefit Equalization Plan. These are the same assumptions the Company uses for financial reporting purposes. See Note 14 to our financial statements for the fiscal year ended December 31, 2018 included in the Company’s Form 10-K.
(3)	Service under the TPC Benefit Equalization Plan was frozen as of January 1, 2002, and the plan was merged into the Benefit Equalization Plan as of January 1, 2009.

The Company's Pension Plan

The Company’s Pension Plan is a qualified defined benefit pension plan with a cash-balance formula or, for certain grandfathered participants, traditional final average pay formulas or grandfathered frozen cash-balance formulas. Each named executive officer participates in the cash-balance formula under which the named executive officer has a hypothetical account balance that grows with interest and pay credits each year. As of December 31, 2018, the named executive officers’ qualified pension account balances were as follows:

Name		Qualified Account Balance at December 31, 2018(1)
Alan D. Schnitzer		$	135,335
Jay S. Benet		$	711,148
Daniel S. Frey		$	200,487
William H. Heyman		$	335,801
Avrohom J. Kess		$	11,000
Gregory C. Toczydlowski		$	332,238

(1)	These dollar amounts represent the participant’s account balance rather than the present value of the accumulated benefit, which is set forth in the “—Pension Benefits for 2018” table above and calculated as described in footnote (2) to that table.

Interest credits are applied quarterly to the prior quarter’s cash-balance pension account balance. These interest credits are generally based on the yield on ten-year treasury bonds, subject to a minimum annual interest rate of 4.01%.

Pay credits are calculated on an annual basis as a percentage of compensation, with the percentage determined based on the sum of age plus service at the end of the year under the following schedule:

Age + Service		Pay Credit
< 30		2.00%
30 - 39		2.50%
40 - 49		3.00%
50 - 59		4.00%
60 - 69		5.00%
> 69		6.00%

Service is calculated based on elapsed time with the Company plus any service with TPC, Citigroup and certain of its affiliates and predecessors (prior to August 20, 2002) and The St. Paul. Pay credits are calculated by multiplying the appropriate pay credit percentage by the named executive

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Table of Contents

Executive Compensation  |  Post-Employment Compensation

officer’s compensation for the year, including base salary and bonus, up to the qualified plan compensation limit (which for 2018 was $275,000).

The pension plan benefit is subject to the qualified plan benefit limit (if applicable) under Internal Revenue Code income tax provisions.

The plan’s normal retirement age is 65. However, under the cash-balance formula, participants are eligible to receive a distribution from the plan any time after they vest (currently after three years of service) and they separate from us. Once separated from us, participants may elect to receive a lump sum payment, life annuity, 50% joint and survivor annuity, 75% joint and survivor annuity, 100% joint and survivor annuity or a ten-year certain and life annuity. All payment forms are actuarially equivalent. Eligible part-time employees who are at least age 62 can apply for an in-service distribution from the plan, calculated as if they separated from us. There are no special early retirement benefits under the cash-balance formula, even in the case of an in-service distribution.

Under the plan, the benefits of some participants may be determined in whole or in part under transition benefit rules—that is, grandfathered benefit provisions.

The Company’s Benefit Equalization Plan (Non-Qualified Pension Plan Components)

The Benefit Equalization Plan consists of three components:

●	the Pension Restoration Plan (currently active);
●	the TPC Benefit Equalization Plan (currently inactive); and
●	the Executive Savings Plan (currently inactive; described under “—Non-Qualified Deferred Compensation for 2018” below).

The Benefit Equalization Plan is not funded, and plan participants have only an unsecured contractual commitment by the Company to pay amounts owed under the plan.

Pension Restoration Plan (Non-Qualified Pension Plan)

The Pension Restoration Plan is a non-qualified pension restoration plan which provides non-qualified pension benefits on compensation and benefits in excess of the qualified plan compensation limit and the benefit limit (if applicable) under Internal Revenue Code income tax provisions. Benefits under the plan accrue, in the same manner as described above for the Company’s Pension Plan, for pay and benefits in excess of the compensation limit and the benefit limit (if applicable).

As of December 31, 2018, the named executive officers’ non-qualified pension account balances were as follows:

Name		Non-Qualified Account Balance at December 31, 2018(1)
Alan D. Schnitzer		$	1,822,651
Jay S. Benet		$	3,059,407
Daniel S. Frey		$	234,039
William H. Heyman		$	3,565,396
Avrohom J. Kess		$	123,000
Gregory C. Toczydlowski		$	1,342,643

(1)	These dollar amounts represent the participant’s account balance rather than the present value of the accumulated benefit, which is set forth in the “—Pension Benefits for 2018” table on page 59 and calculated as described in footnote (2) to that table.

The plan’s normal retirement age is 65. However, participants are eligible to receive a distribution from the plan any time after they vest (currently after three years of service) and they separate from us, subject to a six-month delayed payment requirement following separation. Once separated from us, participants will receive their benefit in ten annual installment payments (for account balances greater than $50,000) or a single lump sum payment (for balances equal to or less than $50,000). There are no special early retirement benefits. To the extent that a participant’s qualified plan benefits are determined under grandfathered benefit provisions, those provisions can affect the benefits payable under the Pension Restoration Plan.

TPC Benefit Equalization Plan (Non-Qualified Pension Plan)

The TPC Benefit Equalization Plan is a non-qualified pension plan. Benefit accruals were frozen as of January 1, 2002. As of January 1, 2009, the TPC Benefit Equalization Plan was merged into the Benefit Equalization Plan. Participants in the plan have cash-balance accounts that accrue interest credits but no pay credits. As of December 31, 2018, the named executive officers’ non-qualified account balances were as follows:

Name		Non-Qualified Account Balance at December 31, 2018(1)
Jay S. Benet		$	290,178
Gregory C. Toczydlowski		$	10,182

(1)	These dollar amounts represent the participant’s account balance rather than the present value of the accumulated benefit, which is set forth in the “—Pension Benefits for 2018” table on page 59 and calculated as described in footnote (2) to that table.

Interest credits are applied quarterly to the prior quarter’s account balance. These interest credits are generally based on the yield on ten-year treasury bonds, subject to a minimum annual interest rate of 4.01%. A portion of a named executive officer’s benefit is determined under a prior grandfathered formula which includes an embedded interest credit rate of 6.00%. The plan’s normal retirement

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