Q1 2021 Travelers Companies Inc Earnings Call

You a product line results.

Automobile delivered another very strong quarter with a combined ratio of 81.8% and Improvement of more than nine points compared to the first quarter of 2020. The Improvement comprises five points of higher net prior-year Reserve development and an underlying combined ratio that is four points better than the prior-year quarter.

These results reflect the ongoing effects of the pandemic namely lower claim frequency due to fewer miles driven that said you have begun to see miles driven moving back toward pandemic levels as restrictions have used and economic activity is picking up. We're actively monitoring current trends and incorporating them into our state specific pricing decisions long as we continue to balance business volumes and profitability.

In home owner is another the first quarter combined ratio of 99.4% increased by fifteen points relative to the prior-year quarter driven by catastrophe losses / 22.5 October eleven points with most coming from the February winter storm and Fries events and an eight point increase in the underlying combined ratio primarily due to a comparison to Thursday usually mild winter weather in the prior-year quarter along with about two points of elevated fire losses many of which relate to extreme winter weather often resulting from the use of alternative choices. The increases were partially offset by Five Points of higher net favorable prior Reserve development, which included the subrogation benefits of the Woolsey wildfire that Dan mentioned

Journey to domestic production automobile net premiums for 3% with 14% growth in new business while retention remain strong at 84% renewal premium package was about flat consistent with our plan to align pricing with our loss experience in Auto. We are very pleased with our ongoing balance execution in this line, which has resulted in 4% year-over-year policies enforced growth at attractive returns.

Home owners and other delivered another strong quarter with net written premium growth of 12% Do business was up 21% from the prior-year quarter retention remains strong and 85% off and renewal premium change was 7.7%

And they only mentioned we have achieved double-digit new business growth across Auto and hold for each of the past. Nine quarters are ongoing new business success is driven by a combination of strategic Investments and initiatives including Quantum home, 2.0 intellidrive and new and expanded Partnerships and distribution relationships.

In addition to delivering strong results for the quarter we continue to roll out new and expanded capabilities to deliver value in the eyes of our customers.

Recent examples include closing on the acquisition of Ensure match our digital independent agencies that expands their capabilities to serve customers and distribution Partners improving our customer service capabilities with the rollout of our new my Travelers mobile application.

continuing

The rollout of our digital quote proposal to further enhance our agents digital capabilities.

further expanding our new version of intellidrive into Canada and additional States

and adding digital auto discount in nine more States for customers who leverage paperless telematics and mobile applications.

In summary, we're off to a great start to the year and are well-positioned to continue to deliver profitable growth with that. I'll turn the call back over to Abby.

Thanks, Michael. We are ready to open up for Q&A certainly at this time. If you'd like to ask a question, please press star one on your telephone keypad. Please limit yourself to one question one follow-up to allow everyone an opportunity Michael Phillips with Morgan Stanley your line is open.

Thanks for anybody first question on business insurance. I guess as we kind of think about the rest of the year and your comments on pricing concerned about baseball strength, I guess when I may take on how the renewal price remember middle premium change should should we should expect that to continue to rise given the impact of maybe better exposure for the year. And how do you think about that versus maybe a continued deceleration and pricing? So how we can think about maybe the the RPC for business insurance?

Yeah, good morning, Michael. Thanks for the question. You know we we stopped getting outlook on on price change, but I'll make a couple of comments that hopefully a responsive, you know, we we're now several years into into compounding year-over-year Improvement in in rate in price. And you know the three sequential quarters prior to this one I think in in business insurance, anyway all made only record prices. So that's pretty good process a progress. I'm sorry. Pretty good progress is a consequence margins are improving but but having said that you know that our drivers of price change over all our environmental and still relevant. So we expect that overall pricing and and and pure rate for that matter will continue to be at levels that that result in expanding wage for a while whether you know prices in particular lines go up down or sideways. I don't I don't think we're going to try to predict that but but but it's all it's all dead.

Rational it's all pretty relative to the right where we needed. And again, there's always a lot of focus on that headline number because that's what we provide. But but but we're looking hard at the granular execution underneath it takes into account all the variables of of of account rate adequacy. So we feel great about about this pricing level. We are we are near all-time highs and put em in and we expect the continued that the favorable environment to continue for some time.

Okay. Thanks Allen. I guess one more if we could switch over then to the authorization anything to read there on that that would signify any interest or lack of interest in any kind of large-scale in the day. Can you take that instead? No, no signal at all. It's simply the the the math I gave you by the time we did the repurchase Thursday. We did in the first quarter of this year. We were down to eight hundred million dollars of authorization remaining under the under the share repurchase. If you look at you know our history over the last ten or twelve years every time we sort of get down to this level the board the board authorizes an additional buyback and this was just the timing to do that.

Okay. Yeah, perfect.

Thank you guys.

Ryan Tunis with autonomous research your line is open.

Hey, thanks. Good morning. So I just following up on that one with Ray. Just trying to get a feel for you know, if we look at the eight for rate increases. Are we seeing, you know more accounts that are closer to rate adequate and that is a product of you know, some accounts needing a lot and some not needing much at all. Or you know, I'm not going to look at across the book of renewals. Is it safe to say that you're still getting you know positive rate on kind of the vast majority of a concert or renewing?

More trying a this is Greg. Yes. We we absolutely are getting the vast majority of our accounts are are getting rate. And as as Alan said, you know with nine consecutive quarters with year-over-year rate change certain pockets, of course are becoming more adequate and you know, just as a reminder as we've shared with you in the past, you know, we really Empower our local Underwriters to look at, you know, every single account based on its own Merit and if we think they've been doing a terrific job of retaining the book and continuing to get some pricing changed across the portfolio.

Got it. And then I guess for Alan just I guess looking for an update on your your current thinking around m&a strategy there, you know back in the past. You haven't done any larger deals. It's I think maybe simply business might have been the last one. I remember which is I think less than a bill. How do you thinking about scale? How are you thinking about m&a a pack? Yeah, right. I understand the question and probably the thought process behind it. There's no change in our approach to m&a and and that that's not to say that that we're not interested. Our shareholders should expect that all the time. We are evaluating transaction opportunities and thinking about them and you know, we we often say some of the best deals with one of the deals we didn't do but but that's not to say that we're not often looking and thinking strategically about what's out there and so we we have a view on all the things out there and all the markets where in that that might be attracted to dead.

Under what terms and conditions we want to do on and and I would have given you the same answer a year ago or five years ago frankly and as as we've said many times the the lens we would use for whether we would do a deal or not. Our does it improve our long-term return profile doesn't reduce volatility and and or would it create shareholder value through through some other important strategic birth. So I mean, of course we do the analysis as you know, Grand early and detailed as as hopefully you would expect from us, but but essentially that's the lens and and that hasn't changed.

Thank you. Thank you.

David Lopez with evercore is are your line is open.

Hi, good morning. I guess I had a question for Greg.

Was there just in in business insurance? I'm wondering if there was any sort of COVID-19 benefit that you guys had underneath uh in that underlying loss ratio that we should be thinking about.

Hey David, it's Dan Frey. I'll take that you know codes codes interesting. This is quarter in that, you know, it's we've been living with it for about a year now off. You know last year as it emerged. It was pretty apparent. You know, what you thought the impact was coded because you were looking at it immediately pre COVID-19 environment versus something new bulb doesn't feel that way anymore. It's sort of woven into the fabric of the economy and and and overall results. You know, that's one of the reasons that you know, even going back to last year we chose to do is everything related to COVID-19 in our underlying combined ratio, and when it's really not feasible to be able to specifically spike out. You know, what do we think? The impact of was in the quarter having said that qualitatively, you know, we have we have some idea. You heard Michael talk about, you know, the impact of COVID-19 on miles driven in P. I didn't get a mention in business since birth.

Because we think it was pretty modest. There was again some level of direct charges related to covet specific losses in things like workers comp, but very modest and we'd say probably be largely offset. If not slightly more than offset by related benefits in non coded frequency.

Got it. Great, that's helpful. And and then maybe if I could just follow up on that, you know, obviously great to see the margin expansion little under two points of underlying law school Improvement in bi, you know that and you know that increased from you know, I calculate around a hundred fifty basis points in the fourth quarter it it feels to me like that should continue to improve at a better, you know at an increasing rate. But when I looked at the amount of renewal rate change that you guys have got over the last five to six quarters, I would have thought that there would have been a bit more than two points of improvement this quarter. So maybe you could help me just think about some of the move old pieces here as I as we think about margin Improvement going forward.

For David Stan again. So I think the numbers that we see coming through business insurance for rate versus Trend up a line with what we've seen from, you know, written results the last several quarters if you just factor in you know, what's earning its way through so we did see, you know, a steadily increasing level of rate increase over last year's. We are seeing a steadily increasing level of improvement in terms of the earned impact of rate versus Trend, you know, it moves slowly and it moves, you know, within sort of tense of a point, you know changes at a time because of this thing I I'd say to keep in mind is

You know, it's not it's not just the simple.

Mass of if we got eight points a red versus Five Points a trend that's three points of margin expansion. It's not it's right vs trend.

It's a three percentage-point difference. But if you translate it into loss ratio points when you consider say theoretically a 60th loss ratio that translates into a little life into points of margin expansion. So being close to two points and margin expansion and expecting that number to increase maybe very slightly from here as the higher rates aren't through is right right where we thought we bought

Great. Thank you.

Josh Shanker with Bank of America your line is open. Yeah, good morning. Everyone a few out of left field questions that I hope I can get some information on as you restart the personal line segment and I guess folded the the direct consumer business into into homeowners and and personal Auto segments what she say about Travelers interests in the direct-to-consumer as a as a channel going forward. Should we expect it? Travelers will be a player in that market or not. It's not really important to your p&l in the long run makes more sense just to fold it in.

Sure, Josh is Michael. I would say, you know, very specifically the the restatement of the financial doesn't say anything about our commitment to direct-to-consumer when wage or the other it's still an important capability for us to still ugh of the business. We're investing in frankly it got to the point where you know, and and you can see it in the office, you know, the restatement that we gave you it was north of four hundred million dollars worth of Revenue as of the end of last year and it was a big enough portion of the business frankly that leaves it to the side of the line break out on the p&l didn't make sense. Not that it moved the needle on those numbers that much but it was an important part of the business that we thought would be fully included in the p&l statistics and then in the domestic production production statistics so that when we do make investments in for example, marketing and advertising page

Drive rope in direct-to-consumer. We want that to show up in the production results that you see so I would say it doesn't indicate a change in our emphasis. And if anything I would I would say a real life versus the importance of that business to us both as a business segment and as of you know, essentially a a place to to continue to build and test and learn and build capability.

And similarly how striking about simply business going forward to Parts one. How big is it? How big does The Travelers think it's going to be over the next few years and to not that we need numbers. But when you are taking a quote in from a direct consumer manner in business is the loss ratio materially different than Thursday is from your agency directed simply business Josh and that lab doesn't absolutely just as a reminder there. We're we're the intermediate that business we're not we're not the market behind it. So we wouldn't comment on the on the profitability of that and I would say about simply business. It continues to be a medium wage initiative that we feel urgent about we're not going to break it up more than that. But but we are investing in it is a very important capability for us.

you know so far the small commercial Market hasn't really adopted a

Direct approach to buying the product other than at the very micro end, but we're not we're not getting that's going to stay the same and and we're investing in capabilities to make sure that that we're prepared to address the job market as as it matures Greg anything just give you a little more color on geography, but the thrust of the premium is still in the UK, but we we've invested in infrastructure in the United States to capture some of that that value that that Alan just articulated, but that we believe is going to take some time for us to the revenue right. Coming through premiums, correct? Yeah. Thank you. Well, thank you. Thank you for the answers. Thanks Josh.

Hi, thanks. So I'm good morning. My first question is on going back to the business insurance discussion. So it sounds like you guys are kind of looking for a table rate. You know, I guess across you know, your business is hoping to kind of confirm. I guess that would be the case kind of stable who the balance of this year just based off with some common package and with you guys expect, you know workers comp. It sounds like that's still slightly negative expect that to inflect this year or perhaps that's something that we should be thinking about in 2022.

Elyse on the on the Google review of rate. We we actually didn't give a view of of Direction other than to say we expected to continue to be at levels that will continue to contribute to margin expansion and we're just trying to get away from from given Outlook and prognosticating but but we feel great about what we achieved in terms of of pricing this Courtney and we feel very good about the outlook for for pricing in terms of workers comp. We've said in in recent quarters that it feels like we're pretty close to making a bottom and and turning around and we continue to feel that way we saw progress in the corner of both in terms of pure rate, which was slightly negative. But it but a steady improvement over the last several quarters real premium change as I said including exposure was possible for the first time in a few quarters, which which we think is uh, really speaks to our customers confidence so that that was a a really good thing. Um, so that's that's what we would that's what we share about Thursday.

I guess the other point I would say at Lisa's it turns out that the workers comp experience through COVID-19 at least so far we're being cautious about this. But but at least so far what we've done in the data is that it's a little bit better than we expected and that that could impact pricing going forward. I don't I don't I think the the likely result of that is maybe instead of hitting the bottom and an inflexible positively it hits the bottom and and bounces around there a little bit before making the turn positive. But but again not a bad sign it's it's reflective of the profitability the line which is which has been a strong and we continue to think we're making a bottom in and moving towards a turn north.

Okay, great. And then my second question, I'm going back on the end of a discussion on I think he said you guys would consider deals with the caveat of not wanting to add to the volatility own company as you think about transactions on that are certain business lines that are higher up on the list as you evaluate potential. M&a. Can you just help us think through a transaction from a you know, where you might want to add on to a business offering?

I guess at least the the comment was you know, the of the three prongs to the lenses we think about reducing volatility is is you know, what are the options that we might need? I guess your question when we think about our portfolio. We think about our capabilities. We think about the breadth and depth of our business. We we feel great. There's there's nothing missing from from our home from our portfolio businesses. We can we can keep going exactly the way we are and compete very successfully having said that there are various opportunities and and some of them could be for scale something could be for products. Some of them could be some geography. I mean there's there's all sorts of things that you know in one circumstance or another might contribute to an attractive acquisition opportunities for us. So it's it's hard for me to say geez. This is what we're looking for. That's what we're looking for again. No, no gaps in in capabilities, but but potentially some opportunities

Okay. Thanks for the color. Thankfully zaremski with credit to your line is open.

Greg good morning may be sticking sticking with a business insurance. You gave us some nuggets am kind of recent loss Trend. I think you you said, you know, there might have been a slight benefit workers comp turning a little better than than expected. And I know you guys don't you know for long lines. You probably don't want to take a lot of good news in the near-term, but maybe you can kind of give us a sense and other commercial longtail lines. Are you are you, you know, are are you suggesting frequency benefit or severity benefit of kind of the world in terms of the kind of the courts kind of gotten back to normal or maybe even more than normal in the in the digital age image. So kind of choice if you can give us some kind of color on on the near-term Lost friends. You've been seeing and in commercial long tail lines.

Sure, my kickstand so take that maybe in a couple of Parts on the on the court and question and sort of that activity, Let's say we see that to continue to to be pretty slow. But you know, we talked about it last year in terms of there's definitely, you know, a change in the in the data off the fact that you know courts were closed for a long time and other settlements then you said have been less active and and I think that continues and and I think we'll probably take a while to to wageworks through you know, what could be the backlog there. So what we've we've done in terms of both our view of, you know current accident year and in Prior accident here off of adequacy as to assume that nothing really has changed that so the data might tell you that things look a little bit favorable. We're not we're not really going to react to that or assumption is dead.

What's things do get back to to Normal Ultimate?

We what we're going to see is social inflation at the the levels and the trends that we've seen it before lost cost Trend at the L A. Great that we talked about, you know, even in the second quarter of last year and that ultimately these things will all settle out in in reflection of of those of those levels. So to the degree that you know, we talked about some favorability last year and we had some favorability and prior to reserve development this year. A lot of that is a lot of that is frequency driven with the washers themselves have simply not emerged but from a severity perspective. We're still going to take the view that that we think that's a very pressure is not really gone away. And that's one of the reasons that you see is a continuing to pursue rate in business insurance to the to the degree that we are.

Cuz that's that's very helpful. And my follow-up is probably for Dan on the Investment Portfolio curious. If you can update us on Thursday the approximate new money yields in the fixed-income portfolio versus the expiring portfolio yield. So, you know, they're going to pick up an interest rates, but I believe there's still a gap there that you guys are trying to overcome.

I'm like there is still a gap. So it's just it's a little less than than it was you know, last quarter. We were talking about that Gap being maybe you know a hundred and fifty basis points now maybe it's down to ninety or a hundred basis points, but it's still a negative and and a reminder just you know, the portfolio turns over slowly enough that even when we factored in the current environment that didn't actually change cuz we gave you a ten million dollar range around our quarterly view of fixed-income an eye on a go-forward basis. So it's up to the needle but only very very modestly still a gap. So yeah new money. You'll still below what's what's maturing out of the portfolio.

Thank you. Ryan is open.

Yes, thank you. A couple of quick ones here first. I'm just curious. Could you comment on Workers Compensation Insurance is we start to see payrolls increasing here? So then have a positive benefit on with agent.

Brian good morning. This is Greg. The short answer on that is yes, and and we we saw that this quarter as Alan said, you know on an RPC basis workers comp was up. And and obviously we don't need more exposure is going to go long-term, but we have shared with you that we are a broad solution of the economy. So is the economy, you know, hopefully corrects and improves, you know, we'll see positive and payroll mostly from new employees and chairs and certainly it will see some of that on the GL side with sales receipts increase and also,

Right, which which favorably impacts margins not just top-line. Yeah, Brian Mart margins to the you get two pieces of exposure coming through one could be more worth which for which there's not really an expected margin benefit related to that in and of itself to the degree that wages go up and and we collect more money more premium for effectively the same the same risk that that could that's when we have historically set a portion of exposure can behave like great. That's that's where you see that so it's it's a little bit of both to the degree that workers are being added to the payroll that brings with it, you know additional risk higher higher wages bring bring higher exposure as well and obviously off volumes go up regardless of which does it come from you get some expense leverage make sense then

It can I just focus a little bit on on the premium in business insurance.

Workers comp I understand also sells CMP continue to be down is that just purely related to what's going on from the economic activity or are there other things that are going on right now there where you're calling your portfolio underwriting initiative just stopped that are potentially pressuring that Top Line and and perhaps are there any kind of programs in place to kind of recharge that growth at some point?

Brian this is this is Greg really is two drivers in that in the first one you mentioned in my prepared comments. We we've really been trying to prove the profitability of that book and you can see that with your PCM increase in Five Points over the last five quarters. And so that's the primary driver but we are still feeling the the Coban impact flow overall in terms of submissions from the volume from our chances down also, but I would also say that's a secondary driver.

Great. Thank you. You're in with Goldman Sachs. Your line is open. Good morning everybody. My first question is in personal lines. Can you talk about the the optic of the expense ratio considering that premiums earned? We're up quite a bit where if maybe it would remain a bit flatter where you invest their sure that this is Michael the chicken, the expense ratio really is volume related costs in commission think think report ordering off we do continue to make investments in the business and and you know, increase our investment level slightly but really the driver of the optic and the expense ratio is just volume related costs in the business office and and I wouldn't pay too much attention to a 1/4 change, you know in in expenses, you know, we still feel good about the the expense ratio of efficiency efficiency.

in the business

Okay, and then my second question in bond and Specialty, I just curious about the comment that new business declined due to fraud claim. I'm just trying to Wed that with the fact that management liability rates are near all-time high. I would have thought that you know, even with discipline you'd have more opportunities to write new business maybe talk about the Dynamics there. Sure. Well, you know, the the new business flow is is actually up but when you think of some of the lines that we right off the situation we've been through economically speaking can create more risk. So think of things like Employment Practices liability think about some of the jobs that have been in place for public company. Do you know so there are a number of things going on that at this point in time. It makes sense to yep.

Really be prudent about the risk you're selecting and we really actually feel quite comfortable with where our new business is coming in.

Got it. Appreciate the response to thank you. Thank you with Barclays your line is open.

Okay. Just wanted to follow up on be irate. Is there a seasonality in your first quarter business mix I realized that workers comp renews on one one. So I'm just wondering if that might be named after your weight story for this quarter versus last. There's a little bit more workers comp in this quarter than typically, but but not a meaningful amount.

Okay, and then we also talked about the the child victim more broadly than just the Boy Scout Association that's getting a lot of attention in our research. We saw that 31 States introduced me to them limitation reform bills and you commented in the past on New York, but wondering how you feel about the strength. You're you're reserved light a potentially higher reviver cases. I work with Stan, you know, we I think we were very very early to to tackle child victims and stuff. Remember that. You know, we took we took our charge related to New York in the first quarter of 2019. So I think pretty far ahead of the market. We've been very cognizant of abuse molestation and type type exposures. We are as as you as you would imagine, you know staying very up to speed.

On development and potential development not only across the state but with stories like Boy Scouts from where were very cognizant of our exposures and what the latest news May mean for those exposure and we continue to be quite comfortable with how those things are reflected in our Reserves.

If I could just sneak and would you be willing also to enter into a settlement on the Boy Scouts similar to one of your competitor?

I think will comment on any specific specific matter. Okay. Thank you.

Meyer Shields KBW your line is opens. Great. Thanks Tom and your comments, you mentioned I guess other losses in the category with in the bank statement and everything says apply on that a little.

I'm sorry, I couldn't hear the last part of the question. I'm sorry. I thought you were talking about the underlying loss ratio in bond and Specialty you mentioned something about other losses, but I'm not sure what you were referring to Thursday. Yeah, so the other losses, you know, we we are having some elevated COVID-19 losses versus the first quarter last year. And so that's a significant piece of it. And then you typically, we have various miscellaneous things as as well as things like mix issues and so in this particular case, we had some cyber claims this quarter found those actually hit our numbers a little bit, but generally it was cold in the variety of other things.

Okay, that's helpful. And then question for Michael if I can I know there's been some news about California insurance commissioner looking for more data and possibly more rebate. How do you think about that for travel good question and and I would say, you know, certainly California is one of a number of states that continue to examine wage. Um, you know, Ray levels and premium relief first and foremost, you know, we're we're working closely with State Regulators across the country and continue to remain in contact and respond to requests for information for the most part, you know, our approach to balancing rate levels with lots of experience has been to talk to a manager through rate and I've mentioned it before but you know since the onset of the pandemic we've actually now filed decreases in about 20 States across the country.

California doesn't happen to be one of those you may recall and the latter half of 2020. We actually provided an additional premium refund to California policyholders. I'll partly in response to the ongoing dialogue with the with the state of California. But but broadly speaking I would say we're remaining in contact and conversation with the Department of Insurance wage in California and are working to be responsive to again request for information and or you know request for reading level adjustments on Etc. So we should continue to Monitor and manage the situation.

Okay, I just said thank you so much.

This finishes the time allotted for the Q&A session. It is now my pleasure to turn the call back over to Abbe Goldstein for closing comments. Thank you for joining us this morning. We really appreciate your time, and as always if there's any follow-up to reach out to investor relations and have a great day. Thank you.

This includes The Travelers first quarter 2021 results conference call. We thank you for your participation. You may now disconnect.