Q1 2020 Earnings Call
On the completion of formal remarks at which time you will be given instructions for the question I must say session.
A reminder, this conference is being recorded a net false when you first twentytwenty at this time I would like to turn the conference over to Miss Abbe Goldstein Senior Vice President Investor Relations. Please go ahead.
Thank you good morning, and welcome to travelers discussion of our first quarter 2020 results given the current circumstances. We hope you when your loved ones are safe and healthy.
We released our press release financial supplement and webcast presentation earlier. This morning, all those materials can be found on our web site at travelers dotcom under the Investor section.
Speaking today will be Alan Schnitzer, Chairman and CEO dance right, Chief Financial Officer, and our three segment President Greg has allowed skier visits insurance, Tom Kunkle, a bond and specialty insurance and Michael Klein of personal insurance, they will discuss the financial results of our business and the current market environment They were well refer.
Each of the webcast presentation, if they do it for prepared remarks, and they will take questions. Then we will take questions before I turn the call over to Alan I would like to draw your attention to the explanatory note included at the end of the webcast presentation. Our presentation. Today includes forward looking statements. The company cautions investors that any forward looking statement.
Involves risks and uncertainties and it's not a guarantee of future performance actual results may differ materially from those expressed or implied in the forward looking statements due to a variety of factors. These factors are described under forward looking statements in our earnings press release and in our most recent 10-Q and 10-K filed with the S. C.
C. We do not undertake any obligation to update forward looking statements.
Also in our remarks or responses to questions. We may mention some non-GAAP financial measures. Reconciliations are included in our recent earnings press release financial supplement and other materials available in the Investor section on our website and now I'd like to turn the call over to Alan Schnitzer.
Thank you I'd be good morning, everyone and thank you for joining us today.
Events. The last few months have been challenging for old National arch go out to all those affected by the global crisis.
Before I get to be impacts on the pandemic on our business and comment on our first quarter results I'd like to acknowledge some action purge.
First I want to express our appreciation for the thoughtful actions taken by our leaders in government at all levels to keep a safe and supports a well being of individuals and businesses.
Their actions reminds instead of society wide condemning requires a society wide response.
We'd also like to extend our deep gratitude for the courageous Jefferson health care professionals first responders their self whose commitment to protecting and saving lives.
Albeit central workers were putting others first as they continue to fill prescriptions stock show the liver goods and provide the other key services, we all depend upon.
Literally and figuratively, they're keeping the lights on and we're grateful.
In addition, I want to acknowledge and thank all of my 30000 colleagues many of whom we're listening. This morning for their exceptional response to this crisis.
Employees across travelers that stepped up an amazing ways to ensure that we continued to deliver the risk management products and services that our customers need to live their lives and run their businesses.
As well as the outstanding uninterrupted service that our customers and Egypt broker partners have come to expect.
Thanks to the commitment in resourcefulness of travelers employees and the tremendous efforts of our technology and operations teams.
We transitioned our workforce practically overnight to safely and effectively work from home.
A few months ago. It would have been hard to envision that we would have more than 29000 people simultaneously logging in remotely.
And that would be hosting with an 80000 virtual meetings on a daily basis, but we're doing just that.
As we've discussed over the last few years, we've been making investments in talent and technology and those investments are paying off in terms of our ability to keep our employees safe and take care of our customers in business partners.
As a company. We're also grateful to be in a position to support those impacted by cobot 19.
Turning to customer billing relief or stay at home auto premium credit program, our distribution support plan accelerating a payment of more than $100 million of commissions for agents and brokers and a direct 5 million dollar pledged to assist hard hit families and communities.
This pandemic has created a tremendous amount of uncertainty for all of US. Nonetheless, let me turn highlighting some of the potential impacts it opened 19, the macroeconomic environment on our business.
I'll start with the topline.
As you've heard us say as a property and casualty unsure what GDP based business, we ensure the out but at the economy.
As a result, we in the industry will be impacted by lower premium levels as the economy contracts.
Much and for how long will depend on the extent and duration of the negative economic impacts related to the pandemic.
We have always been very attentive to our expense base and we continued to be thoughtful in that regard.
In the context of the current environment, we will make adjustments to our expenses, where it makes sense.
Not plan to make significant adjustments to our fixed expense base in response to short term fluctuations in business volumes.
Accordingly, as a consequence of pressure on the topline we expect an increase in our expense ratio in the near term.
In terms of our investment portfolio economic fallout from the pandemic will impact our net investment income.
Dan will have more to say about that shortly.
Turning to loss costs, there will be cobot 19 related loss activity.
But generally that's exposures decline there will to one degree or another.
Corresponding decline in loss.
Well that will mean in terms of profitability will depend on the relationship between the declined it earned premium and the decline in losses.
In other words loss ratios could improve or deteriorate and that will vary by line.
Short term impacts could also be different than longer term impacts.
Turning to some of our key lines of business.
In personal auto in recent weeks that you've seen a meaningful drop off in order frequency.
As a result, we announced our stay at home auto premium credit program offering a premium credit to our customers for April and May.
At the same time, there maybe some offsetting impact in terms of auto severity.
For example, severity could be impacted as lower levels of traffic, resulting collisions occurring at higher speeds.
Turning to our commercial businesses in workers' compensation, while it varies by state.
Generally claims for injury or disease or compensable, when the employee demonstrates that the injury or illness arose both out of it in the course of their employment.
With respect to cope with 19. These claims will most likely be applicable in the case of healthcare workers and other first responders, which is not really represents a significant part of our book of business.
Some states have taken steps to effectively expand the scope of workers comp covered by creating presumptions of compatibility.
Other states are considering doing the same.
There are few dynamics to this that argue for policymakers and regulators regulators tickets careful approach.
First from a marketplace perspective shifting the exposure to the workers comp system will increase loss costs that will be reflected in rate, making increasing the cost of workers comp insurance going forward.
Also those states that have workers compensation funds that presumably there their proportionate share of the cost.
In any event, we're watching this closely.
In management liability, there's potential for elevated frequency.
For example, under public company do you know policies, we generally associated stock market volatility with a higher frequency of claims related to securities class action.
However, given the breadth of the market decline causation, maybe harder for places to prove in those cases.
Also by way of example, under employment practices liability coverage, we expect additional claim activity related to the increase in furloughs and layoffs of employees.
Sure loss activity for the industry and for us can be elevated depending on the duration of the economic shutdown and the depth and duration of stress in the economy.
Well projects have been impacted by shelter in place orders. Our sense is the vast majority projects have been permitted to proceed contractors are currently still working.
We believe that force majeure or other provisions included that many construction contracts would as a general matter provide would lead to contractors for late completion due to covert 19.
Sure loss experience will also be impacted by other factors for example, the financial strength of the bonded firms.
Types of bonds, written and security arrangements.
Our high quality surety book was effectively stress tested in the 2008 financial crisis and performed well.
Our underwriting approach has remained disciplined since that time.
I'll take a minute.
Business interruption coverages under commercial property policies.
Let me begin by saying that for every claim without exception, we start by looking at the facts of the claim and the terms of the policy to determine whether the claim is covered or not.
That said, our commercial property insurance policies that include business interruption, including as a result of civil authority require losses to be costs by direct physical damage to property from covered cause of loss.
In addition, our standard policy forms specifically excludes loss or damage caused by resulting from a virus.
More broadly the issue of retroactively expanding coverage beyond the original and tens of a policy is important for the industry. So let me make a few additional observations.
Insurers don't collect premiums to cover losses, the policies weren't written to cover.
Requiring those losses to be covered retroactively on any broad scale would overwhelm the industry's plane staying ability for legitimate claims unfairly leading many individuals and businesses exposure.
That point industries financial strength is especially important in a time with increased natural catastrophes.
The spring tornado season is already active hurricane season is fast approaching and wildfires represents an ongoing threat.
A couple of all of that contract certainty as a core underpinning of the U.S. free market system.
Any effort to undermine that has the potential to set a dangerous precedent.
Finally, with respect to liability coverages in the near term as people shelter in place, we are seeing fewer commercial auto accidents and slip and fall type claims.
In addition, we're seeing some movement by the plaintiff bar to settle claims faster.
On the other hand, we expect the plaintiff bar will seek to generate corporate related litigation.
Let me take a minute to address the related and important policy issue.
The trial bars already actively soliciting play to places for cases related to the pandemic.
A number of lawsuits have already been filed including related to that manufacturing and distribution of hand, sanitizer and efforts to develop a cobot 19 vaccine.
Our insured so I don't have any view on the merits of those cases.
We should all be concerned that many frivolous lawsuits will be brought undermined the nation's recovery.
Including buys delaying and adding extends to R&D related to the development and distribution of Cobot 19 tests and therapeutics.
Deterring employers from responsibly, bringing employees back to work and retail businesses from responsibly opening to customers.
And targeting highly vulnerable businesses like those in the healthcare and travel industries that can't afford the distraction for the expense.
On top of these specific concerns as I'm sure you're aware I.
I did states has the highest toward taxing the world.
According to a recent study by the Institute for legal reform Port costs amounted to more than $3300 for U.S. household and much more than that in some states.
Americans shouldn't have to endure that and they can't afford to at the moment.
In other words are recovered from this crisis that benefit considerably from common sense tort reform as well as legal liability protection for health care heroes firms involved in recovery efforts and all businesses seeking to reopen.
I'll now turn to our first quarter results.
This morning, we reported core income of $676 million and core return on equity of 11.5%.
As compared to the prior year the results for the quarter were adversely impacted by a higher level of catastrophe losses and charges related to the pandemic.
But just annual address shortly.
Our underlying underwriting income in the quarter was higher than the prior year benefiting from record first quarter net earned premium of $7.2 billion, an underlying combined ratio, which improved to 91.3% despite $86 million a pre tax code 19 related charges.
Our high quality investment portfolio performed well generating net investment income of $519 million after tax.
Turning to production, we executed successfully on a marketplace strategies grew net written premiums by 4% and more than $7.3 billion.
Given the timing of the pandemic impacted cobot 19 on production generally wasn't significant for the quarter.
Net written premiums and business insurance increased 1%.
Westrick renewal premium change was strong at 7.8%, including renewal rate change of 6.2%.
No rate change was up again, both sequentially and year over year, while retention remained very strong.
In bottom specialty insurance net written premiums increased by 13% with strong growth in both our management liability and surety businesses.
We know premium change in our domestic management liability business was 7.5% up more than three points over the prior year quarter or retention remains historically high at 89%.
In personal insurance net written premiums increased by 8% with agency homeowners up 18% agency auto up 3% with both lines benefiting from strong production.
Across all three of our segments. We're pleased with our production results and we will continue to execute to meet our target returns.
You'll hear more shortly from Greg common Michael about our second results.
I'll close by saying that in this moment of uncertainty.
Stakeholders can count on us to continue to operate consistent with our long term financial strategy.
We have for many years in two other challenging periods of uncertain.
We have the talent technology risk management processes and procedures and importantly, the financial strength to manage through these extraordinary times and to continue to deliver meaningful shareholder value over time.
With that turn the call over to Dan.
Thank you Alan.
Core income for the first quarter was $676 million down from $755 million from the prior year quarter.
Core OE was 11.5%.
Down from 13%.
The change in both measures from last year's first quarter resulted primarily from a higher level of catastrophe losses compared to a relatively quiet quarter last year.
First quarter results also include the adverse impact of Kogan, 19, which I'll provide more color on in a moment.
Our first quarter results include $333 million, a pre tax cat losses $140 million higher than last year's first quarter. This quarter's cats include $182 million from the March tornado activity in Nashville.
A few idea in the current quarter, which I'll provide more detail shortly.
Net favorable $27 million pretax.
The underlying combined ratio of 91.3%, which excludes the impacts of cats and P. Whiting was strong and improved by three times our points from the prior year quarter.
Our pretax underlying underwriting gain of $594 million was 11% higher than in the prior year quarter.
Electing the volume benefit from higher levels of earned premium at all three business segments lower levels of non catastrophe weather losses, and an improved loss ratio on personal insurance auto.
These benefits were partially offset by the current quarter impact of increases to loss ratios in the commercial businesses recognized during the second third and fourth quarters in 2019, all of which we discussed in previous calls.
And the impacts related to cold in 19, including first quarter loss estimates and increasing the provision for uncollectible receivables and reduction in our estimate of ultimate audit premiums receivable.
The expense ratio of 30% reflects our ongoing focus on productivity and efficiency.
First quarter expense ratio includes nearly half a point of elevated bad debt expense related to the impact of Combet 19.
After tax net investment income increased by 5% from the prior year quarter $519 million.
And by higher returns in our non fixed income portfolio.
Recall that results for our private equities hedge funds and real estate partnerships are generally reported to us on a one quarter flat.
The impact of the disruption and global financial markets that occurred in the latter half of the first quarter impact our second quarter results.
I'm not perfectly correlated are not fixed income returns directionally follow the broader equity markets, which were down 15% to 30% during the first quarter.
To the extent to broader markets may recover in the second quarter and beyond our portfolio and then see that benefit in future periods on election basis.
The current environment, providing outlook on our expectations for fixed income results for the remainder of 2020 comes with more uncertainty than usual.
He said that as a result in the recent decline in short term yields we expect that fixed income and I will decrease by approximately $20 million after tax per quarter compared to the corresponding periods in 2019.
Turning to prior year Reserve development.
Personal insurance fault auto and property losses came in better than expected for multiple accident years.
Business insurance net favorable people idea was driven by better than expected loss experience and workers comp and commercial property largely offset by unfavorable results and commercial auto.
Each of this quarter's movements are relatively small when compared to the reserve base.
Regarding reinsurance as discussed during our fourth quarter results call. We did renew our property aggregate catastrophe Xol treaty for 2020.
Providing aggregate coverage of $280 million part of $500 million of losses above an aggregate retention of $1.55 billion.
Through March we had accumulated $414 million of qualifying losses toward the aggregate retention.
Turning to capital management operating cash flows for the quarter of $628 million for Gen. Very strong all our capital ratios were at or better than target levels, and we ended the quarter with holding company liquidity of approximately $1.6 billion well above our target level.
Investment yields increased modestly as credit spreads widened during the first quarter and accordingly, our net unrealized investment gains decreased from $2.2 billion after tax as of yearend to $1.8 billion. After tax at March 30 Onest.
Adjusted book value per share, which excludes unrealized investment gains and losses was $92.63 at quarter end comparable to year end and up 4% year over year.
Adjusted book value per share included an adverse impact of 97 cents due to net unrealized losses from resulting from foreign currency translation as the dollar strengthened against most foreign currencies as a result of the coldest 19 crisis.
We returned $681 million of capital to our shareholders this quarter comprising share repurchases of $471 million dividends of $210 million.
As noted in the press release, our board has authorized an increase in the quarterly dividends 85 cents per share.
We have increased dividends every year for the past 16 years.
Dividend payments provide a reliable stream of income to the millions of individuals on our shares are for one case or the retirement accounts or as part of overall financial plan.
Given the current environment, we thought some additional commentary regarding our overall balance sheet strength, our liquidity position would be appropriate.
As we've said for many years, we measure success overtime and as a result, our capital management and investment strategies are designed to withstand the periods of stress that will inevitably arise.
To that end, we closed the first quarter with over $100 billion in total assets, including a 77 billion dollar investment portfolio.
As illustrated on page eight from the webcast presentation.
Our high quality portfolio consists of 94% fixed income securities.
Those fixed maturity assets, 98% are investment grade.
The fixed income portfolio provides a significant and reliable stream of income for us.
Page nine of the presentation provides a view of our municipal bond investments as you can see that $31 billion portfolio consistent extremely high quality holdings.
Page 10 of the webcast chose our non municipal fixed income holdings in categories of particular interest given the economic impact of cold in 19.
Aggregate of our high yield holdings in these categories accounts for less than 1% of our fixed income portfolio.
Certainly when we do have holdings in any particular category $400 million are more those are investment remains high quality names as detailed in the notes tender light on the ground.
Page 11 of the webcast shows the makeup of our non fixed income portfolio, which represents only 6% of our total investment portfolio.
These investments are highly diversified with minimal exposure to those risk categories that are most vulnerable to the effects of cobot 19.
Our thought that's a capital mix has only $500 million of upcoming debt maturities in November of this year. After that we have no debt maturing until 2026.
Cash and short term investments provide us with substantial readily available liquidity and thats not counting our undrawn $1 billion credit facility or our capital our capacity to issue additional commercial paper.
We stress tested our cash flows and liquidity under a variety of scenarios considering this uncertain environment.
And we're confident that we are well positioned to continue to meet our obligations to our customers our distribution partners and our employees and to continue to support our community.
In terms of capital management, our strategy remains unchanged.
Thinking about share buybacks in the current uncertain environment.
Feels to us like holding onto a little more capital is preferable to holding onto a little less similar to how we felt in 2008.
Accordingly, we may buy back some shares in the coming quarters, where we may choose to buy non until there is more clarity on the state of the economy.
Finally, let me take a minute to address outlook.
Looking at premium volume for the remainder of the year expect to see more significant impacts and the economic contraction on written premium and are occurring.
And because earned premium typically lags written premium continue to feel the effects on an earn basis beyond the end of the year as Alan said, how much and for how long will depend on the extent in duration on the negative economic impacts related to the pandemic.
As you've seen in our 10-Q, we've not provided forward looking information about pricing levels or underlying underwriting margins given the increased level of uncertainty in the current environment.
As an aside.
In the past year. So we have discussed with a number of our shareholders. Whether there are other more constructive ways to provide our qualitative and directional views of the business going forward as compared to the form in which we have given historically.
Once the current uncertainty subsides, we will consider whether and how to share our perspective going forward.
Let me sum up what you've heard across Alans comments and mine to give you. Some texturants just think about our second quarter.
We expect downward pressure on both written and earned premiums and there will be downward pressure on the investment income.
We expect both of these impacts that we pronounced in the second quarter.
There will likely be an increasingly expense ratio due to the premium decline.
We do not have clarity on the underlying combined ratio due to uncertainty around variations and frequency and severity for each product line.
And keep in mind that the second quarter is historically, our highest cat quarter.
Now I'll turn the call over to Greg for discussion of business insurance.
Thanks, Dan.
I'll start by echoing Alan statement expressing our deep appreciation for the efforts of the essential workers were trying to protect and support individuals and businesses certainties trying times.
I'd also like to acknowledge and thank all my colleagues for their exceptional work.
We couldn't be more pleased with the commitment and collaboration we have witnessed among our field organization in distribution partners to continue to deliver the acceptable support our business older customers conduits that.
Well, we have many examples one bit I'm proud to highlight is our risk controls organizations ability to continue to support new business opportunities will not always being able to perform onsite assessments.
There was a combination of third party data and remote enabled technology, we've increased our virtual risk assessments by more than four and a half times from pre cope with levels. These virtual capabilities have allowed us to continue to support our agents and brokers, while not compromising our risk selection.
On to results for the first quarter business insurance produced segment income of $289 million and the combined ratio, 102.2% open favorable to the prior year quarter, primarily due to higher catastrophe losses and from the impact to cope with nicely.
The combined ratio included a five point impact from contest.
Which was higher than we have seen for the quarter, driven, particularly by tornado and hail losses from chat 16, which had a heavy mix of commercial losses for us in Nashville, Tennessee.
The underlying combined ratio of 97.3% was 2.3 points higher than the prior year quarter, driven by approximately two points related to the corona by risk related economic impacts.
This amount about point in a half affects the loss ratio and about a half a point affects the expense ratio.
Turning to the topline net written premiums were up 1% over the prior year quarter.
This is a lower growth rate than what we've seen over the past few quarters with a couple of factors contributing.
First it has a lower level of new business, what's I'll touch on you moments when I discuss production.
In addition international written premiums were down 8% driven by Lloyds, primarily as a result of continued profit improvement initiatives.
Lastly, audit premium, although still positive was lower as compared to last year.
Well, we will always remain active in the marketplace premium levels will be an outcome of disciplined underwriting and risk selection as we pursue appropriate financial returns across the portfolio.
Turning to domestic production, we achieved strong renewal premium change of 7.8%.
Including renewal rate change of 6.2% well retention remained high at 84%.
The renewal rate change of 6.2% was more than a point from the fourth quarter of 2019 and more than four points from the first quarter of 2019, notwithstanding the persistent downward pressure in workers' compensation pricing.
As part of our efforts to achieve target returns, we continue to achieve higher rate levels broadly across our book as rate increases and all lines outside of workers comp were meaningfully higher during the quarter as compared to the.
Fourth quarter, and first quarters with last year.
In addition, we achieved positive rate and about three quarters of our middle market accounts this quarter.
Which was up from about two thirds in the same quarter last year.
Importantly, we've achieved this progress while retention has remained strong.
Our REIT strategies continue to be thoughtful and execute the local and granular manner.
You may have noticed our webcast presentation that RPC for prior quarters was adjusted down by as much a point or two driven by the exposure component.
Yes, the meeting our production statistics as normal course for us as consumer activity and or changes in economic factors inform our estimates of ultimate exposure change.
So while our process was unchanged the impact was more meaningful than normal this quarter, given the significant economic effects of Copel 19 on our customers operations.
As for the individual businesses.
And select renewal premium change was 5.8%.
Putting renewal rate change of 1.6%, which was up one point from the first quarter of last year.
Retention was relatively consistent at 81%.
New business of $120 million was down 6% from the prior year, driven primarily by lower workers' comp pricing.
In middle market renewal premium change was 7.5% with renewal rate change of 6.6% each measure up significantly from both fourth quarter in first quarter of last year, well retention remained high at 86%.
New business, a $283 million was down from the prior year quarter, which we attribute largely to our disciplined underwriting and pricing.
We're very comfortable with our execution, we continue to invest in our strategic capabilities and are confident that we're well positioned to profitably grow overtime.
To sum up this is certainly an unprecedented market environment. We're operating it we believe our meaningful competitive advantages, including our strong distribution relationships and our talent and expertise position us well to navigate through these uncertain times.
We need to serve our customers and agent and broker partners.
With that ill turn the call over.
Thanks, Greg echoing the earlier comments.
I'd be remiss, if I did not take the opportunity to thank all of those including medical professionals first responders and all essential workers, who ordinary one are making it impossible for us too new to serve our customers agents and communities especial. Thanks also to our agent.
And my travelers colleagues, who have been unrelenting, we dedicated throughout the pandemic core.
Turning to the quarter bond and specialty delivered another quarter of very strong returns and grow.
Segment income was $122 million, a decrease of $16 million from the prior year quarter.
Bind to the underlying combined ratios remained very strong.
The underlying combined ratio of 85.7 increased 4.6 points from the prior year quarter.
This increase was driven by the impact of higher loss estimates for management liability coverages, primarily the impact of co bid 19 and related economic conditions.
Turning to the topline net written premiums were up 13% for the quarter, reflecting growth across all our businesses.
In our domestic management liability business, we're pleased that pricing again improved for the third consecutive quarter to a strong 7.5%.
While retention remained at historically high 89%.
These production results demonstrate the strong execution of our strategy to improve margins, while maintaining strong retention of our high quality portfolio.
We will continue to pursue price increases where warranted.
Domestic management liability new business for the quarter increased 5% to $58 million.
Our domestic surety business posted very strong growth in the quarter driven by a mix of larger bonded projects as well as a modest increase in construction activity.
International also posted very strong growth and significantly improved pricing in the quarter driven by our UK management liability business.
So bonded specialty results remain strong in the quarter.
And while there is clearly the potential for elevated loss activity in certain bond and specialty lines.
And the depth and duration of the associated economic disruption are unknown, we continue to feel great about the disciplined risk management and underwriting integrity that shaped our portfolios.
Our ongoing strong field execution.
And our strategic investments in market, leading products and services.
And we feel we are well positioned to navigate through this challenging environment and continue to deliver strong returns overtime.
And now I'll turn it over to Michael to discuss personal insurance.
Thank you Tom and good morning, everyone.
Personal insurance began 2020 with strong profitability on production.
Segment income was $336 million up 21% compared to the first quarter of 2019.
Our combined ratio of 88.2% improved by approximately two points driven by better underlying underwriting results, partially offset by lower net favorable prior year reserve development and higher catastrophe losses.
On an underlying basis, the combined ratio was 84% in.
An improvement of five points compared to a strong prior year quarter with excellent results in both home and auto.
The net impact from Cobot 19 on segment income was not significant in the quarter.
Increases in the allowance for credit losses on premium receivables and higher loss estimates in homeowners and other primarily from special event coverages for what.
Were offset by favorable impact on auto loss experience that we began to see in the latter portion of March.
Turning to the topline net written premium grew 8% driven by strong growth in domestic results, especially in homeowners.
International net written premiums were down 5%, primarily as a result of continued auto profit improvement actions in Canada.
Agency automobile delivered another impressive quarter with a combined ratio of 89.4% consistent with the prior year quarter.
Underlying results improved relative to the prior year quarter, well favorable prior year reserve development was lower than last year.
The underlying combined ratio of 89.2% improved 2.9 points relative to the prior year quarter continuing to reflect improvements in frequency levels.
Roughly half of the improvement reflects the continuation of the lower claim frequency levels, we had already been observing.
While the other half is associated with a decrease in miles driven as a result of cobot 19 and related economic conditions.
To add some texture to the impacts of cobot 19 data from our telematics program, which we call until the drive indicates a fairly rapid decline in miles driven per day during the latter part of March.
Resulting in an average decrease of more than 40% and miles driven for the second half of them up.
As a result auto claim frequency drop well below our expectations.
Based in part on that data and an expectation that favourable frequency trends will continue in the near term.
We recently announced the travelers stay at home auto premium credit program.
The program provides us personal auto insurance customers with a 15% credit on April and May auto premiums.
Premium credits to customers are estimated to total $140 million for the two months and are expected to be recorded as a reduction in premium in the second quarter.
The first quarter results in agency homeowners and other were very strong as our combined ratio improved by four points from the prior year quarter to 84.2% despite higher catastrophes and net prior year reserve development that while favorable was lower than the prior year quarter.
On an underlying basis, the combined ratio was 74.9%.
And improvement of almost eight points versus the prior year quarter, driven by lower non catastrophe weather.
The quarter benefited from unusually mild winter weather reading, especially to lower freeze related claims.
Turning to production agency automobile net written premiums grew 3% with 10% growth in new business, while retention remains strong at 84% and renewal premium change was 2.4%.
Agency homeowners and other delivered a very strong quarter with net written premium growth of 18%.
New business was up 30% from the prior year quarter retention remains strong at 86%.
And renewal premium change increased for the fifth consecutive quarter to 7.7%.
Higher new business levels again benefited from the successful rollout of our quantum home 2.0 product.
Now available and 37 markets quantum home twos granular pricing segmentation customizable coverages and ease of quoting combined to form a solution that is both sophisticated simple.
And our increased quote volume and higher average premiums suggests it continues to hit the mark with both agents and customers.
Before I conclude I'd like to highlight a few examples of our investments in people abilities are paying dividends for us our agents and our customers in this challenging environment.
First our digital claim capabilities are supporting our ability to respond to customers and their time of need while keeping them and our employees safe.
From the end of February through the first week in April the use of virtual inspection and damage measurement for auto claims and the use of live video inspection for property interior claims more than doubled.
Second the take up rate in our auto Telematics program until a drive is on the rise as consumers show increased interest in products that determine premiums based on driving behavior.
And finally, the digital tools, we've invested in to support our agents and brokers are in high demand.
They are usage of our digital marketing campaigns, including a handful of new ones developed specifically in response to cope with 19 has increased more than 50%.
To recap, we're thankful and personal insurance to have had a great start to the year.
We're also grateful for the supports that essential workers first responders and healthcare workers are providing to us in our communities in this challenging environment.
In these unprecedented times I'm, particularly proud of the way our team has responded to our customers and distribution partners. While also taking care of themselves their loved ones and one another.
While there will be further challenges ahead, our team's efforts continue to position us well to meet the needs of those we're privileged to serve and to continue to grow profitably while investing in the business for the future.
With that I'll turn the call back over to Abbey.
Thanks, Michael we're ready to take questions now thank you.
Thank you at this time, if you'd like to ask the question Press Star one on the telephone keypad, which I question President.
Just a question press star one.
Your first question comes from the line of Michael Phillips with Morgan Stanley. Please go ahead.
Thank you again, one of them, but it.
I think I think my first question if I for Greg.
Look we see except the coal with your own the.
Margin was relatively flat.
Quarter, you're right renewal rate was still up and accelerated I guess, given and we hear you would have an equally with exposures in the near term I guess, how do you think about.
How the margin.
Should play out in the near term I guess specifically.
I'm thinking what are your thoughts one continued ability to push for rate in the near term on on on your commercial lines.
Yes, Michael.
Actually starting to greg's anything to add we'll turn it over to them. So.
I think for all the reasons that essentially all this have expressed in one form or another the outlook for margin is uncertain and I agree.
Looking for first quarter is actually quite good.
From a pricing perspective, I can tell you that we will continue to execute to meet our objectives and in many lines that means we will continue to get rate now there will be some conversation about what customers can tolerate in times like this but but I can tell you that customers may benefit as exposure declines lead to premium declines.
But on those accounts, where we need to improve returns we wouldn't expect premiums to decline as much as exposures will decline so in that environment that would lead to an improved price per unit. If you will so so we will we will continue to execute to meet our target returns and obviously, we'll see what happens, but we're coming off a pretty good pretty.
Good trend and for all the reasons that are probably apparent.
Our a lot of lines out there that continue to need margin improvement.
Okay. Thanks, Thanks, Alan I guess, let me my second question be more specifically on your commercial auto book.
And you did talk on there at the very personal auto how you see frequency down in the back half of March and about 40% or so.
How does that come how does that look for your commercial auto book any differences relatively on a personal auto on frequency declines and how that looks.
But Michael this is Greg, yes, we're obviously watching and monitoring the trends that it's really early in terms of watching both the frequency on the commercial auto book, well, Michael and my team and the group of Actuaries are spending a lot of.
Geographic level, the business unit level, and calibrating, where the frequency as what it's just too early to really comment what the frequency will look like upward commercial auto at this point, but but we would would say Mike that has been down and and.
I think I should that in my prepared remarks that has been down with with the exact relationship will be relative to the personal auto that we'll have to sale plays out.
Michael This is Michael Klein I, just wanted to clarify the comment in my prepared remarks, with actually about miles driven being down more than 40%.
Not a frequency number certainly there are correlated but I just wanted to clarify that the comments or about miles driven.
Got it. Thank you. Thank I appreciate it.
Your next question comes from the line of Mike.
With credit Suisse. Please go ahead.
Hey, good morning.
Okay.
In the prepared remarks, you talked about certain states for workers comp instituting up assumptions of compliance ability.
Can you elaborate is this something that travelers and the industry is accepting or is this.
Could play out similar to the business interruption insurance.
Or certain of these.
Tim This could kind of played on the courts.
I just is this expected to to negatively impact.
Margins per comp in the near term than you think Ellen you alluded to pricing changing.
Eventually led to account for for these changes any clarity would help thanks.
Yes sure. Good morning. Thanks for the question. So I would say broadly speaking the answer to your question is it's early in this is still developing there are.
Some number of states that have.
Have adopted some type of presumption in many cases that applies to telco workers and first responders where.
Might have expected in any event that there would be compensable.
In other states you they have or are talking about extending the scope of the essentially compensable 82, other workers and so.
In effect that we would ship to FERC approved to who's Who's got up to.
Proved the way the that disease was contracted.
In terms of exactly how it's going to play out I think we'll have to see.
In some states that the business communities that are thinking about what thats going to due to their premiums are.
Engaging in the debate along with other interested parties, but.
Exactly how it's going to play out I don't know I mean, it if it were to move against us.
We would expect there would be an impact on margins in over the near term and then obviously that will work its way into rate making overtime.
Okay, great and and lastly.
In terms of the surety line, which you guys could provide some helpful color on.
Could you explain how the force majeure.
What will help outs.
And is this the main line width and found in surety segment, you expect to potentially.
Most impacted or are there or is it more than management liability side or for both thanks.
So thanks good morning, it's Tom.
I would say that when you look at the surety lines construction surety is about 2% of the revenue and commercials charities about one third of the revenue. So we're going to focus on that bigger piece a construction surety you asked about force majeure. So we have force majeure clauses.
From an action causes suspension of work clauses and as a generality as Alan pointed out in his comments, we think they're going to provide time relief in the event. The contractors are delayed that will be handled on a contract by contract basis, but you know I think the import.
One thing when you look at the construction surety line.
Is that it's been armed in many many uneven most states to be an essential business and as such it is our sense and again as Alan pointed out I think that the vast majority contractors are still working.
And so if that's the case you would look at that construction surety business in you would say that.
That's a healthy sign.
So I think when we when we consider the surety lines. The other thing is you're going to see just a big difference.
Amongst different carriers, so it's going to depend on how they underwrote their book the last three to five years and the depth and duration of any slowdown so I hope that answered your question.
That's helpful. Thank you.
Tom I think you said, 2% construction surety I think you met two thirds im sorry, I Didnt mean, two thirds, yes.
Thank you.
Your next question comes from the line up.
Bob.
Capital Research. Please go ahead.
Hi, Thanks, a lot.
And I could your comments for everyone's wellbeing and I've never side looks forward to driving to Windsor to revisit your claims facility some point.
Well, we look forward to haven't yet.
Okay. Thanks, Ive two questions.
In the premium credit areas for the relief that you're providing to auto personal auto customers. How are you handling agents commissions on.
On the relief.
It was my first question I've got an unrelated second question.
Sure the answer to the question on commissions. This is Michael is there is no impact to base commissions from the premium earlier, so they need it gets paid the full commission on the policy.
Thanks, and my other question was I made.
I took note of Alan your specifying the virus exclusion and I greatly appreciate that I just wanted to ask.
In the this very very small segment simply business.
I think some portion of their volume is written a using travelers paper does that virus exclusion.
I have an explicit.
Place there as well.
We don't actually we don't actually have a property product on the simply business platform, so that that wouldnt that wouldn't come into play them.
Perfect. Thank you.
Thank you.
Your next question comes on line of Ryan So now with Auto research. Please go ahead.
Hey, Thanks, Good morning, first one Houston and business interruption, our interests I just wanted to confirm.
Is that.
Yes, there is not a substantial subset or any subset of your policies that don't have the virus exclusion.
Yes, Brian when you've got as portfolio the size of bars, we're certainly going to find a pocket humor, there that doesn't have that specific exclusion, but but I can tell you that.
Subject to some legislative action that we think would be subject to a constitutional challenge, we really do not think we have material exposure from business interruption.
And for property in the International book.
There's a difference awarding issue there.
Yes, so that's really good question Theres definitely a difference.
The way the wording in the product work outside United States I'm, not a coverage expert and definitely not the right one to explain the nuances to you, but I can tell you we get to the same conclusion outside the United States as we do inside the United States. We just do not think we've had a material exposure to business interruption.
Okay and then my my follow up was just on the.
The workers comp in and the discussion around.
I guess, we've essential employees.
You said you don't have much exposure to the frontline workers or healthcare I'm curious if you could maybe quantify that a bit but then thinking about.
Hi, guys other subsets.
It had been deemed essential that aren't necessarily healthcare first responder as you start thinking about I don't know utility workers food.
Any hope I guess, you could give us there on.
On the size of that book in the context of what you're writing.
There's nothing we can really quantified for you I can tell you as it relates to help turn first responders from a premium perspective, it's a pretty small percentage of the workers comp premiums that we have.
Once you start getting outside of that every state defines essential a little bit different.
And so it's where we are we will definitely have exposure to essential workers indeed into questions. Okay. So what are the infection rates going to be what did the health care costs et cetera et cetera.
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But there is there's really there's really nothing there's really no number we can give you on an aggregate basis I think.
That.
Now having a competent to give you were that we think would be helpful.
Understood. Thanks.
Thank you.
Your next question comes on line of Brian Meredith CBS. Please go ahead.
Yes. Thank you.
I think you've talked about business interruption pretty well, but just one other just quick clarification do you all provide a virus endorsement to customers at all and if so what percentage of your policies would you.
Provide that endorsements.
Yes, so so.
This is.
Cost travelers bases that there there are a very few number of policies that do have an affirmative virus grant.
And losses for that would be included in in our results for this quarter.
We would have contemplated that in the charge we took.
Excellent great Thats really helpful and then second question.
Just curious.
Do you all Mr., Tom Jones participated all in the energy surety market and if so would what are your expectations there.
Well in our commercial surety business, we do have a modest participation in the surety business.
There you see lots of different parts of that market from upstream midstream downstream. The service providers, we have some parts of that market that over the years, we have like better than others over I think our approach to the energy market has always been somewhat cautious.
And.
While we certainly do have a modest exposure there.
We're not outweighed in any way shape or form.
Great. Thank you.
Thanks for the questions Brian.
Your next question comes from another line of at least Greenspan with Wells Fargo. Please go ahead.
Accordingly point.
Yes can you hear me.
Yes, we can now good morning.
Yes, sorry.
Okay.
$1 that you guys called out for coal bed in the quarter.
And that's around 1.2 points on your combined ratio and so I guess my question is that for one month for about one month from March is the right way to think about and I understand.
Down in front of giving full guidance is right way to think about it that we would make that.
For the full quarter, and some kind of math of time, we or some assumption thats, how long we think cobot impactful.
Within the industry.
Hi, This is Dan Fry I'll try to take that I.
I think that would be very difficult to do for a couple of reasons.
One is part of the charge as we explained in my commentary.
Relates to bad debt provision for billing release and billing relief, we expect to occur for a finite period of time.
That's going to be based on what we've already announced voluntarily and in some cases, what states are asking us to do but right now that's pretty box and so we think that we would have most of that.
Inside inside what we've seen so for so far I'd say that could be more of that in the second quarter, but I certainly wouldn't take that number times 12.
Unless of course, this becomes a prolonged and NTT situation in which in which that situation has to continue on a go forward basis I.
I think similarly, some of the losses that we've talked about as Tom just talked about we tried to make.
As I will just talked about chart, we tried to make.
Assessment of where we think we do have some potential exposure.
Outside the U.S. and tried to be fully responsive in that regard so it would be.
I think.
I think too early to want to make a conclusion and too I would I would counsel I think against that that approach.
Okay. That's helpful. And then my second question on.
When you called out on some prior year adjustments within business insurance I believe you for the fourth quarter of last year is impossible to quantify that what line item on it seems like it was.
Offset by other kind of development.
I'm not sure what the question is can you give me let me some help on specifically what you're talking about.
I thought I thought.
10.
Since a business insurance for you guys had called out some.
Adverse development for the later in the 2019 accident year was already kind of true ups or.
On.
Some of the longer tail lines, whether commercial auto.
Related to accident year 2009 within Justice is concerned.
Yes, so so that if it's in the commentary in the end DNA around the change in the underlying combined ratio in business insurance, we do have the impact of changes in the liability lines that we recorded and second third and fourth quarters of last year and disclosed in last year's quarter now when you look at.
So as they carry forward and have an impact on the first quarter of this year. It was not included in the first quarter of last year. So that's that's the Delta we're trying to explain there but at least if they are you maybe asking about prior development.
I think that's what you said, but at least like we could take this offline I think were little confused about the question.
Okay. Thank you very much.
Thank you.
And we have time for one my question coming from the line of Jimmy Bhullar with JP Morgan. Please go ahead.
Hi, Good morning. So another question first just on workers comp again.
Can you talk you mentioned your views on business interruption, just your views on.
The legality of claims in some cases, but can you talk about submission activity for the line and how many claims you are seeing filed versus what you'd normally see file in a normal quarter just to get an idea on how much litigation there could be at this point.
When you say submission you mean claim submissions is that what you're talking about yet.
Yes.
Yes, so whether or not.
Yes, broadly speaking workers' compensation claims frequency would be down.
Our.
I wouldn't want to quantify that because I'm not sure we'd want to say what we've seen in a couple of weeks isn't necessarily going to translate what we're going to see for a full quarter, but.
Across across many of our lines of business, we've seen frequency claim frequency down I'm I'm not sure that necessarily translates into litigation risk. However.
Thats correct.
Sorry on business interruption.
Business interruption.
Oh business interruption I'm sorry.
Yes, theres definitely been some claim activity that you know the.
I'm essentially every one well icing on the vast majority of them we declined it because we've got we've got the exclusion or other provisions that apply.
So I don't I don't actually don't even know what the precise number is.
The vast majority.
We declined to claim consistent with the policy terms.
And then how to deal.
Insurance, Paul the bridge work in the sense that if you are if you end up losing some cases in forward on business interruption.
Is the or reinsurance plan and going to cover you regardless of whether you have losses or not or the language is such that.
Your primary losses or losses on the primary side will not be covered by insurance as those contracts have specific.
Chris losses as well.
Yes, it's it's always a mistake I think to get to give claim advice on either side of the insurance policy without specific facts and circumstances and looking at the policy language, but but to be responsive to your question I will say that the all in all of the fortunes doctrine is alive and well and reflected in our reinsurance treaties generally.
That being said if if there is legislative action that.
Essentially overturns.
Contract certainty and we end up in constitutional challenges et cetera, and then or in a new world and I'm not sure.
Im not sure what happens to reinsurance in that in that situation.
Okay. Thank you.
There are no further questions that this Sam I will tend to call back over to add for closing remarks.
Thank you very much for joining us this morning and for those left in the queue and anyone else's questions of course, some as always please feel free to follow up with Investor Relations.
And thank you.
This concludes today's conference call you may now disconnect.
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