Q3 2021 Travelers Companies Inc Earnings Call
Sure.
Good morning, ladies and gentlemen, welcome to the third quarter results teleconference for travelers, we ask that you hold all questions until the completion of formal remarks at which time you will be given instructions for the question and answer session.
A reminder, this conference is being recorded on October 19th 2021 at this time I would like to turn the conference over to MS. Abbe Goldstein Senior Vice President of Investor Relations Ms. Goldstein you may begin.
Thank you good morning, and welcome to travelers discussion of our third quarter 2021 results.
We released our press release financial supplement and webcast presentation earlier. This morning, all of these materials can be found on our website at travelers dot com under the investors section.
Today will be Alan Schnitzer, Chairman and CEO, Dan Fry, Chief Financial Officer, and our three segment Presidents, Greg talked about business insurance, just crank, a bond and specialty insurance and Michael Klein of personal insurance.
He will discuss the financial results of our business and the current market environment. They will refer to the webcast presentation as they go through prepared remarks, and then we will take your 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 statements involve risks and uncertainties and is not a guarantee of future performance.
<unk> results may differ materially from those expressed or implied in the forward looking statements due to a variety of factors.
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 SEC, we do not.
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 investors section on our website and now I'd like to turn the call over to Alan Schnitzer.
Thank you Abby good morning, everyone and thank you for joining us today.
We're pleased to report strong top and bottom line results for the quarter and the first nine months of the year, including very strong underlying underwriting profitability and healthy top line growth.
Core income year to date of $2 $2 billion is about $800 million higher year over year generating core return on equity of 11, 6%.
Accordingly for the quarter was $655 million or $2 60 per diluted share.
<unk> core return on equity of 10, 1%, despite the high level of catastrophe losses.
Our cat losses, well well.
The lower market share well above the prior year quarter, and the 10 year average for the quarter.
Underlying underwriting income of $632 million pre tax was 6% higher than in the prior year quarter.
Driven by record net earned premiums of $7 $8 billion in a very strong underlying.
One ratio of 91.4%.
We are particularly pleased with the continued strong underlying fundamentals in our commercial businesses.
The underlying combined ratio improved by almost four points in business insurance and more than five points imbalance specialty insurance.
As you'll hear in a few minutes from Michael underlying results and personal insurance are impacted by audio frequency returning to prepandemic levels and elevate severity in both auto and property due to higher costs for labor materials.
Our consolidated results demonstrate the value of having a diversified group of businesses.
Turning to investments are high quality investment portfolio generated net investment income of $645 million after tax reflecting reliable performance in our fixed income portfolio and very strong returns that are non fixed income portfolio.
These results together with our strong balance sheet and cash flow enable us to grow adjusted book value per share by 10% over the past year.
After making important investments for the future and returning significant excess capital to our shareholders.
During the quarter, we returned $821 billion of excess capital to shareholders, including $601 million a share repurchases.
Turning to the top line net written premiums grew 7% to a record eight $3 billion.
Each of our three segments again contributed meaningfully to the top line growth.
And business insurance net written premiums grew by 5%.
With the new a premium change a 99% up more than 200 basis points, a year over year and near all time high.
Premium change was driven by continued strong renewal rate change and higher exposure growth.
Importantly at the same time Pretension was also higher our.
Our ability to continue to drive price change at historical highs, while increasing retention.
Excellent marketplace execution, and the stability of the pricing environment.
And bond and specialty insurance net written premiums increased by 19%.
By record of premium change of 13.6% in our management liability business and continued strong retention.
We are also pleased to report strong production in our surety business.
And our commercial businesses written pricing continues to outpace estimated loss trend, which will continue to benefit margins acid earns in.
Given social another inflation, the frequency and severity of weather related loss activity and the low interest rate environment, we expect the pricing environment to remain strong.
And personal insurance net written premiums increased by 7%.
Policies in force in both audio and homeowners were record levels, driven by continued strong retention and growth in new business.
Before I wrap up on results I would like to spend a minute discussing how are leading data and analytics and risk expertise contributed to a relatively favorable loss experience with hurricane Ida.
As I shared in our in our first quarter earnings call our share of the industry's property cat losses over the past five years have been meaningfully lower than our corresponding market share.
And while there is always the potential for us to have outsized exposure to an event. It was no accident that we began outperformed in hurricane Ida.
Our meeting underwriting expertise supported by cutting edge David analytics.
Are key to an effective assessment of risk and reward.
For US third party models are starting point for our more advanced proprietary cap modeling.
At the portfolio level the insights from our models warned us away from the coast, where either made landfall given the impediments to achieving an appropriate risk adjusted return.
And the other states one iced path, we effectively managed risk selection pricing and other terms and conditions I'm, putting sophisticated data and analytics at the fingertips of our frontline underwriters.
These include robust flood risk scoring.
Location intelligence down to the parcel level.
Hailed dashboards.
And output from a risk control engineers.
Within personal insurance, we continue to see the benefits from our highly segmented quantum home 2.0 product, which is now hold out more than 40 states.
In the northeast extreme rainfall from Ida resulted in significant claim activity for the industry, including from water and drainage backup.
Which is a coverage we provide in our <unk> 2.0 product.
The model underneath the product leverages data and analytics to underwrite in price that coverage on a very granular basis.
In addition to underwriting data and analytics are increasingly informing our claims handling strategies.
For example are AI assistant claim damaged detection model was a key part of our idea claim response.
This model uses AI at high resolution aerial imagery to detect the extensive damage to individual properties as soon as it day after an event.
Within two days of impact we were collecting and analyzing aerial imagery customer properties along items path as it moved across 20 states.
This enabled us to remotely identify which of our customers properties had sustained exterior damage and effectively organize our claim response.
In some cases, we can use this technology to adjust and pay total losses before the customer has even been able to return to their home.
We also utilized other virtual capabilities are either response.
Such as image share and live video capture on a majority of claims with interior damage.
These leading edge capabilities enhancing claim experience for our customers.
By cutting significant time out of the claim process.
Providing an accurate loss assessment and in many cases, eliminating the need for physical inspection.
Again with Ida we've successfully closed 90% of all homeowners claims within 30 days.
All of this also results in a more efficient outcome for our shareholders.
As strategic as the data and analytics or maybe even more important is the culture that brings it all together.
Our collaborative approach to developing a holistic 360 degree view of risk incorporating underwrite clean actuarial risk control legal and regulatory inputs is an important differentiate differentiating factor and effectively managing risk and reward.
That cultures decades in the making and very hard to replicate.
Before I turn the call over to Dan I'd like to welcome Jeff Clink, President of our bond and specialty insurance segment to call.
By shared last quarter, Jeff as a 22 year veteran of travelers. Most recently as a member of Tom Congress leadership team and head of our management liability business.
Jess exceeded Tom following his retirement last month.
We're fortunate to have Jeff and the role and you'll hear from them in a few minutes.
To sum it up we're pleased with our results for the quarter and year to date.
Are significant and hard to replicate competitive advantages position is very well to continue to deliver meaningful shareholder value over time and.
And with that I'm pleased to turn the call over to Dan.
Thank you Alan.
Poor income for the third quarter was $655 million compared to $798 million from the prior year quarter.
For the quarter.
Core return on equity was 10.1% on a year to date basis core Roy was 11.6%.
The decline in core income was driven by prior year reserve developments in catastrophe losses.
Recall that last year's <unk> benefited by approximately $400 million of subrogation recoveries from PGA.
Pose unfavorable year over year comparisons for partially offset by increased investment income and a higher level of underlying underwriting income.
Underlying underwriting income increased 6% to $632 million pretax, reflecting a higher level of earn premium and all three segments with a strong underlying combined ratio of 91.4%.
Improvements in the underlying combined ratio in both business insurance and bargain specialty for offset by an increase in the underlying combined ratio and personal insurance.
Business insurance involving specialty results ultra reflected the benefit of our pricing efforts as earned price continues to exceed loss trend.
We expected a higher underlying combined ratio and personal insurance given that last year's quarter benefited from unusually low auto losses related to the pandemic.
As Alan mentioned, the underlying combined ratio and <unk> was further impacted by higher severity and both the auto and homeowner's products.
Jeff and Michael will provide more detail on each segment results in a few minutes.
On a consolidated basis, the underlying loss ratio for the quarter improved slightly to 62%.
Compared with last year's 60% to 2%.
The expense ratio of 29, 4% was in line with the prior year quarter and in line with our expectations. We've.
We've improved the expense ratio by more than two points from where we were five years ago.
Having added roughly $7 billion to our annual net written premiums over that period.
While maintaining a focus on productivity and efficiency, all while adding significantly to the level of strategic investment, we're making to assure our future success.
Before turning to catastrophe losses, I wanted to point out that within our underlying combined ratio.
Non cat weather was higher than we would have assumed for the quarter.
Although lower and the unusually high levels, we experienced in last year's third quarter.
Our third quarter cat losses, where $501 million pretax compared to $397 million a year ago.
Remember that in last year's third quarter, we had a full recovery under the property aggregate catastrophe, so well tree.
And this year's third quarter, we recognized a partial recovery of $95 million from the treaty.
$83 million benefiting the cat line with $43 million in business insurance and $39 million in personal insurance and $12 million benefiting our underlying results with $3 million in business insurance, and 9 million and personal assurance that.
It leaves us with $255 million of potential recovery in the fourth quarter, depending on the level of qualifying losses, we actually experience.
In terms of the level of cat losses relative to our assumptions third quarter cats were elevated compared to what we would have assumed for a typical third quarter.
Although our losses from Hurricane Ida are well below a relative market share the sheer size of Ida on top of the other cat losses in the quarter resulted in overall cap losses that were higher than our assumption.
Turning to prior year Reserve development.
And personal insurance $30 million pretax net favorable.
<unk> resulted from better than expected experience from recent years and the property line.
And bother specialty insurance $22 million pretax net favorable <unk> was driven by favorable loss experience in the surety product line for recent accident years.
And business insurance net unfavorable <unk> was $108 million pretax our annual asbestos review resulted in charge of $225 million is the level of claim activity did not decline as much as we had assumed our previous estimate.
Excluding the asbestos charge business insurance had net favorable prior year reserve development with $117 million, driven primarily by better than expected loss experienced in workers comp across multiple accident years.
That investment income improved to $645 million after tax this quarter or non fixed income portfolio delivered another strong results contributing $224 million after tax.
As you can see from the detail provided on page six of the webcast presentation or recent results and the non fixed income portfolio has been unusually strong.
And I would caution you that this level of returns is not likely to continue.
Consistent with our expectations fixed income returns were down slightly from the prior year quarter is to benefit from higher levels of invested assets was more than offset by a decline in yields.
For the fourth quarter of 2021 that we expect NII from a fixed income portfolio, including earnings from short term securities of between $425 and $435 million after tax.
For 2022, we expect that figure to be between 420 and $430 million per quarter.
Turning to capital management operating cash flow for the quarter of $2.5 billion was an all time record.
All our capital ratios were at or better than target levels, and we ended the quarter with holding company liquidity of approximately $2 billion.
The market value of the bonds that are fixed income portfolio declined is U S. Treasury yields increased and credit spreads widened during the quarter accordingly, or after tax net unrealized investment gains decreased for three $2 billion as of June 30th $2.7 billion at September 30th.
Just to book value per share, which excludes net unrealized investment gains and losses was $104.77 at quarter end up 5% this year and and up 10% since September 30th last year.
We returned $821 million of capital to our shareholders during the third quarter with $220 million of dividends and $601 million in share repurchases.
Overall, a very good quarter for us with healthy top line growth strong and improved underlying margins are commercial businesses excellent cash flows and a terrifically strong balance sheet.
And with that I'm pleased to turn the call over to Greg for discussion of business.
Bedstand business insurance at another three quarter was strong financial results and terrific execution in the marketplace.
Segmented go was $558 million for the quarter up more than 50% from the prior year quarter the.
The improved year over year result was driven by higher underlying underwriting echo prior year reserve development and higher net investment ankle, partially offset by higher catastrophe losses.
Where once again, particularly pleased with the underlying combined ratio of 92%, which improved by three eight point from the third quarter of 2020, primarily attributable to three things first about two parts of the improvement resulted from bird pricing that continued to exceed lost cost.
Friends.
The other nearly two points resulted from a combination of a favourable impact associated with the pandemic and a lower level of property losses.
Turning to the top line net written premiums were up 5%.
Benefiting from strong renewal rate and exposure levels as well as high retention.
As for domestic production renewal premium change was once again historically high at 99%, while retention increase to an exceptional 85%.
The nine 9% renewable premium change was up more than two points from the third quarter of last year with strong renewal rate change of 630 per cent and continued improvement in our customers exposure growth.
In addition to our granular price execution. We've also focused on careful management of deductibles attachment points limits sub limits and exclusions, which can also contribute to an increase in the price per unit of risk.
New business was down from the prior year quarter as we continue to be thoughtful about balancing risk and reward for new business in the marketplace.
That's for the individual businesses and select renewal premium change was a strong nine 7%.
While retention improved from recent periods to 82%.
Underneath RPC renewable REIT change was 4.1% of well over a point from the third quarter of 2020.
We're also encouraged with the improving exposure, which was up about three point as the economy continues to reopen.
New business was up a bit from the prior year driven by the continued success of our new boss 2.0 product, which is now lives in 39 states.
A middle market renewal premium change of 95% and retention of 88% or both historically hot.
Renewal REIT change of 6.2% remains strong.
As always we remain disciplined around risk selection and on the right.
To Soma business insurance had another terrific quarter.
We're pleased with our execution in further improving the underlying margins in the book, we continue to invest in the business for long term profitable growth.
With that I'll turn the call over to our new partner in the room, Jeff cut.
Thanks, Greg and thank you Allen for that welcome I'm very pleased to be here, we built an industry, leading surety of management liability franchise, and we look forward to continuing to perform innovative transform to profitably grow these businesses into the future.
Turning to the results followed specialty delivered excellent returns and grow from a quarter.
Segment income was $174 billion of about 50% compared to the prior year quarter, driven by the impact of higher net our premium Ah significantly improved underlying underwriting margin and favorable prior year Reserve development.
The underlying combined ratio of 83, 4% improved by five and a half points from the prior year quarter, reflecting lower pandemic related loss activity earned pricing that exceeded loss cost trends at a lower expense ratio.
Turning to the top line net written premiums through an exceptional 19% in the quarter with strong contributions from all our business.
And domestic management liability.
Renewal premium change was a record 13.6% drew.
Driven by record renewal rate change.
Retention remains strong at 86% consists.
Consistent with recent quarters, but down a few points year over year as we continue to nonrenewed cyber policies for accounts. The adult meat are updated minimum requirements for cyber hygiene.
Notably research indicates that implementing affordable cyber risk mitigation controls such as multifactor authentication could prevent the vast majority of rights more attacks.
Domestic shirdi also posted strong growth relative to the pandemic impacted prior year quarter and.
In addition, our international businesses again posted excellent growth, including strong management liability retention rate.
So both top and bottom line results for bonded specialty were terrific. This quarter demonstrating are thoughtful approach and strong execution across our businesses and now I'll turn the call over to Michael.
Thanks, Jeff and welcome.
Good morning, everyone and.
And personal insurance bottom line results were impacted by weather Ah returned to Prepandemic claim frequency and auto and higher loss severity impacting both auto and home results.
Segment income declined by $394 million from the prior year quarter.
$262 million of that decline is attributable to lower favorable prior year reserve development as the prior year quarter benefited from the <unk> settlement Dan referenced.
The remaining unfavorable variance was primarily driven by lower underlying underwriting results.
Our underlying combined ratio increased by six and a half points to 95, 2%.
We were pleased to see our top line momentum continue in the quarter with net written premiums up 7%.
Automobile underwriting results reflected higher loss levels for the quarter to.
The combined ratio was 100% and included three four points of catastrophe losses, mostly from Hurricane Ida.
The underlying combined ratio was 97% of approximately 15 points from a prior year quarter, which reflected are unusually low loss activity due to the pandemic.
The underlying combined ratio increased mainly due to claim frequency effectively returning to prepandemic levels in line with the trend we referenced in our prior quarter call.
To a lesser degree higher severity higher loss severity impacted the combined ratio as well as the vehicle replacement and repair costs remain that elevated levels.
We believe these profitability challenges our environmental and in response, we are executing on our plans to file rate increases in about 40 states over the next three quarters.
As we indicated last quarter it will take time for future reactions to earn into results, but we do expect to have higher rates and market in several states by year end.
And homeowners another the third quarter combined ratio increased by 16 points from the prior year quarter to 193% driven by a 24 point reduction in net favorable prior year reserve development, primarily related to the <unk> recovery from last year.
The combined ratio included 17 six points of catastrophe losses, mostly for Hurricane Ida.
Homeowners catastrophe losses were four seven points below a very active prior year quarter.
The underlying combined ratio was 93.3% an improvement of three and a half points over the prior year quarter, which experienced a very high level of loss activity.
That said the underlying combined ratio was above our expectations, reflecting elevated non catastrophe whether in non whether loss activity.
Both of which included higher severity related to a combination of labor and materials price increases.
Again, we believe these trends are environmental and we continue to seek price increases in response.
A short before I shipped to discussing production I'll remind you that looking ahead to the fourth quarter there tends to be a good amount of seasonality and our combined ratio results by line of business with the fourth quarter auto losses, typically higher than fourth quarter homeowners losses, typically lower than their annual average levels.
Turning to production, we were very pleased to deliver another strong quarter in both auto and home.
Automobile policies enforce grew 5% to a record level driven by strong retention at 85% and continued growth in new business, which increased by 8%.
Renewal premium change was essentially flat, reflecting the continued impact of the rate increases we filed in response to the pandemic.
Domestic homeowners and other delivered another excellent quarter with policies in force up 7% also to a record level driven by retention of 85% and new business growth of 5%.
Renewal premium change increased to eight 8%.
In the quarter, we continued to deliver solutions that meet customers, where they are give them what they needed and serve them how they want a.
A couple of highlights from the quarter include our new digital self inspection process for property customers, which improves their onboarding experience and provides valuable information to our underwriters.
And Intel the drive or proprietary auto telematics, offering, which now had distracted driving as a rating variable in 40 U S markets, and Ontario, Canada, providing valuable feedback to drivers and continuing to advance our sophisticated pricing segmentation an automobile.
We will continue to invest in new capabilities like these for our customers and distribution partners.
Despite a challenging third quarter on the bottom line. We remained pleased with our overall performance and we are well positioned to profitably grow our business over time now.
Now I'll turn the call back over to Abby.
Thank you and I are.
We are happy to turn to your question.
Can ask any question you want any depressed star one on your telephone.
Police and fire will be compiled Keith K rosner.
Yes. My first question comes from the line at Michael Phillips with Morgan Stanley.
Thank you and good morning, Uhm first question Ellen I think might be uhm to your opening comments and on D. I.
And expect you also a number of reasons why price environment should remain strong I guess, maybe help us define or think about what you mean by strong and how we can think about maybe a margin for b I enter next year I guess the back half of the next year. We have price you know kind of close to where loss trends are so just kind of help think about when you win listens reasons why prices.
Should we expect this pricing too it seems like start to converge with where loss trends are which obviously you could have some impact on the margins in the end of 2022. So just comments on what you meant by stronger.
Good morning, and thanks for the question.
You're very narrowly I think focusing on right versus loss trend and by and by the way. There is still a margin there at unit Velic appear right over some long historical periods right. We continue to get is actually a pretty good number but if you look at the overall pricing number I mean at nine nine that's practically an all time high and there's a lot of margin in that in that <unk>.
Closure, so we continue to see a nice spread between written price and loss trend and I do think that's the right way to think about it.
Nonetheless, as we know what our product returns are we know what the.
Headwinds are we know what our objectives are in terms of of our returns and we don't we need to do so I think that from from here pricing will continue to be strong now.
We've also been getting pretty good pricing for some time now and it's been compounding for awhile and so you've got different different lines in different places some some need more help than others. So.
From here.
The rate of increase is going to be impacted by that so some lines or the rate of increase will be higher sibolga sideways. Some some still be an increased rate of increase may go down but overall.
We continue to expect pricing remains strong I'm I'm not I'm not sure we're going to put much more dimension around it other than that.
That gives you some color that's helpful.
It does yeah. Thank you. Thank you I appreciate that.
The second question for.
For your or Mike maybe on personal auto.
Like I appreciate your comments on.
It was more of a frequency back to prevent or go to a lesser degree the environmental issues with wall severity. So I guess do you think the the loss severity side, they're on all though has.
Pete will it get worse from here do you think and how long lasting will that be I ask that because I wonder if.
If it's to a lesser degree that.
The 97% core.
Not that much higher than where you were prepandemic 90, 695 and that kind of range. So I asked those questions because I wonder how much rent you think you'd need impersonal auto if those things have already peaked I'm not sure if they have or how long they might last and your comment was there to a lesser degree anyway. So any comments that would be appreciated.
Yeah sure Michael.
Michael Here, Iowa, I would say a couple of things about that so to dimensionalize that a little bit more for you. The auto underlying combined was up 15 points in the quarter.
We'd say three quarters of that was loss experience returning to prepandemic levels.
And about a quarter of it remaining quarter of that is is the trade in Dan increased cost to repair and replace that we talked about last quarter that essentially continued into the quarter.
In terms of how long it's going to last.
I could point, you tell a little bit of external data that that might help there.
Certainly certainly pressure on the system right a lot of the costs.
<unk>, the total losses and replacement cost values for totaled vehicles.
Which tracks pretty closely with used car prices and inside the quarter. We are actually encouraged by the July and August data.
From from places like the Buddhist view carp used car price index that looked like the peak had happened in May and June with starting to decline.
In the first part of the quarter now that data kicked back up again in September.
And I think it's kick back up reflects the pressure on the system.
Ida occur in the quarter estimates are that over 200000 vehicles were destroyed in that event.
At the same time that you have.
Vehicle inventory than the us at historic lows and so.
I think we're going to we're going to see.
Continued pressure on the cost to repair and replace related supply chain related to labor and related to used car parts of prices.
But again that was about a quarter of the 15 points.
We will factor that into our underwriting pricing decisions as we move forward.
I would just add to that the.
The good news is this is impacting short tail lines, where we can see it very quickly and react to it and the reserves are obviously significantly way less leveraged given the duration of those liabilities.
Okay. Thank you guys.
Our next question comes from the line at Mike as Arensky, when it was a research.
Okay, great good morning.
Maybe I'm moving to.
Focusing on.
On the business segment.
And Greg commentary parched apart the euro over a year improvement in the underlying loss ratio and it was noted that two points came from a favourable impact from the pandemic.
Maybe you can give us more details on that and I I believe that's a more favorable impact versus what you like.
Hey, Mike It's Dan Fry, So just to clarify Greg comments of about four point improvement you had about two points come from.
Price versus trend and then two points come from the combination of.
Favorable impact of the pandemic and some favorability and non-cash property losses.
You're right in terms of the.
The impact on business insurance from the pandemic last year in the third quarter. We gave you that the favorable impact was.
About a half a point and.
And that was the net of direct charges that we took related to Covid think things like workers' comp charges for COVID-19 somebody contracts the disease and that was more than offset by indirect impacts things things like lower frequency on commercial auto.
This year, you've got a larger net impact, but it's really the impact of the absence of those direct charges, we're not seeing that anywhere near the same level, we saw a year ago, but the two point you were talking about was not just attributable to COVID-19. It was attributable to the combination of Covid and non cat property experience.
Got it and and.
Has any parse through all the loss costs commentary between commercial lines and personal life I know, there's a lot of moving parts.
But would you say.
100000 foot view that.
Kind of an updated view.
Of loss trend.
Yeah, so so a little different between the two in business insurance, you got a lot of moving parts, including including mix of business, but we haven't seen.
A meaningful change in our view of long-term normalized trend.
And personal assurance given Michael's comments, we've taken slightly increased view of what we say is our view of long term normalized Trent.
Thank you.
Our next question is from at least Greenspan, whether wells Fargo.
Hi, Thanks, My first question is Arnon.
Wow.
You like you are talking about time and place.
That over the next quarter.
Are you concerned at.
For cleaner.
Yeah, something like that.
<unk>, obviously lost tend to think of late.
Thank you also looking at 2020 with an extremely profitable here interesting. So how do you think about resonators and chest level.
Level of pain.
You were looking to team.
All of us.
Sure at least it's Michael Thanks for the question and before I address the question I think I may have misspoke in the in the script I think I said that.
Otto RPC was impacted by the rate increases we value then respond to the pandemic. Obviously, we didn't file rate increases in response to the pandemic those were rate decreases.
Which by the way I think is relevant to your question right. So as we are in the conversations with regulators, which are active and ongoing as we speak.
We're in conversations with them about that loss history were also in conversations with them about the actions we took in response.
Which included rate decreases in a variety of jurisdictions, which included premium refunds to customers in a variety of jurisdictions and so we're having conversations with them around how we align pricing with boss costs over time.
And engage in discussions with them about how.
How to view the 2020 loss experience.
In that context.
If I if I take a step back and think about the process a little bit more broadly.
What what we would say.
About the process of of getting right arm.
Is that it it is an ongoing dialogue between us and the regulator that about an exchange of information to justify the pricing that you think you need on a go forward basis.
And generally speaking what we have found as we've been able to get to.
Where we can align price with loss costs overtime.
You'll have.
Some challenging conversation in some jurisdictions and maybe less challenging conversations and others.
To put a little bit of a point on the the 48 jurisdictions, we do expect some of those increases to become effective in queue for.
And actually a couple of them literally this month. So so we're on the way too.
Getting those increases filed and approved and then as we've talked about it it will take time for them to get written in that earned into the book of business, but but we're making progress.
And then my second question on.
And that's how your question as well.
Hussein with NPI it around that 5%.
For all loss trend for I think like six quarters now on obviously it sounds like things have been photo so let me get back to normal with the pandemic.
Of course, it started to be opened in theory and anything you guys are paying attention to the <unk> on.
On the inflation side.
Let me think about Los Angeles as well.
<unk> you know like to go into 2022.
Yeah at least as you as you can imagine we're looking at all the data that comes in every quarter and there are some things that are.
That are moving up and there are some other things that are moving down.
It varies by lying we've we've got still some some frequency benefit and the commercial auto space, there's some severity and certain elements.
Those are things that were more lever too and Michael's business and we are in great business in terms of the relative mix of loss cost. So we've got our finger on the pulse of all of those things in our AG.
Aggregate conclusion is there's not much of a change there.
I would add to that there was nothing unusual about this quarter relative to any other quarter. We're always looking at frequency and severity in every line and occasionally there's something will move here and there, but but again. This is a view of long term trend in and so nothing nothing really unusual in the quarter.
Thank you.
Our next question comes from the line at Orion of Tunis with Autonomous research.
Hey, Thanks, good morning.
You said a couple from Michael.
The first one is.
I'm thinking about your auto broke as being largely preferred I.
I guess in your mind, what are some of the advantages and disadvantages of having a preferred book personnel less preferred book when we think about the the loss trend environment boost endemic.
Yeah. Good question, Ryan I think.
Think there's a couple of things there.
Generally.
I would say.
Are going to be impacted by.
Commuting patterns that are more related to.
Office jobs, what do you think about the general profile over preferred book.
I think the other dynamic you've seen a preferred book, though is newer vehicles with more technology and so when you think about some of the cost pressures on repair and replacement costs.
That's going to put that's going to put upward pressure there.
And I would say that.
Well, we saw I think.
Some differences over the past 12 to 18 months that you could sort of point too in different parts of the country different books of business in terms of how the pandemic impacted different segments differently.
As we sit here today, the economy's broadly recovering the country's broadly recovering so you don't see quite as many differences I don't think.
Rapidly or by segment.
That are that are driving differences in las experience.
Across of eight segments of the of the industry. The other thing that's true of our book of business is.
It is heavily round it.
And so it's.
Well, we talk a lot about the individual lines of business.
We certainly look at customers.
And the total portfolio as we as we look to manage it.
Got it and my follow up is.
Hearing you say that frequency packet prepandemic levels, I guess I'd always thought about prepandemic is kind of being a ceiling for frequency.
Would return to.
Are you thinking about it or.
Based on what you're seeing the accident sequence you can run a bump prepandemic levels.
Yes. It is a great question, Ryan I would say underneath frequency, we look at driving activity. We look at trips we look at mix of of activity.
And a lot of the patterns that we've talked about in the past we continue to see so so on the one hand, we continue to see whether we look at our own Intel drive data, whether we look at Google mobility data.
Again fewer commute trips on the other hand, we actually see elevated shh.
Shopping trips and recreational trips and so the mix of miles has changed.
But mileage broadly when you look at the department of transportation data again or Intel the drive data MSG sensor data is back to prepandemic levels.
As as frequency so so.
Again, the mix looked a little bit different but miles driven trips broadly are back sort of close to where they had been in so.
As as we talked about a little bit earlier, we see.
The frequency return sort of in line with the trends, we outline last quarter coming coming into this quarter.
Thank you.
Our next question comes from that line at the Geneva, <unk> with J P. Morgan.
Hi, Good morning, I had a couple of questions both on the commercial side.
First can you talk about what you're seeing in terms of pricing and.
Some of you remain mind, specifically commercial auto and then worker's comp have you seen a bottoming deer or is it still soft.
And then I had another one.
Gordon Yes.
Yeah, we continue to see worker's comp. This is correct by the way good Lord worker's comp bump below the water level and so we had a slight negative with workers comp other than that we continue to be led with excess casualty of umbrella automobile and property that gives you just a little bit of color in terms.
Of the range of over eight activity from the most positive to lease.
Okay and.
And then do you think about inflation affecting lost costumed commercial lines.
Think Ellen had mentioned like lost you assuming lost costs are fairly stable, but.
Have you seen inflation.
Begin to have an impact or do you not think that that's a factor on the commercial side.
Yeah.
We certainly see it but you got to start with what are we seeing relative to our expectations because we we certainly expected some level of inflation.
Also on the commercial side say relative to personal insurance you got to think about the impact on a on a mix suggested basis. So you've got the casualty and the property and there you don't see this cost of goods sold type of inflation. So much on the casualty side.
And while we did see a little of it on the commercial side. There was an offsetting frequency benefited shape heard both Greg and Dave talk about so it's not that we don't see it it's not that we're not aware of it but but we expected some and it just doesn't have the same overall impact on that segment.
Okay, and if I could just ask one more on personal auto I think you were talking about.
Sort of thinking about raising prices on the call last quarter as well and it doesn't seem like any of that.
Was in your results this quarter.
I have you already started implementing price hikes or is it more.
Is more of the benefit is going to flow through in 2022, just given the timing of getting.
Austin getting permission and then implementing those.
Sure Jimmy it's Michael I think.
First of all we would not have expected any rate increases to take effect. This quarter as we talked about it last quarter, we were beginning to.
The process of seeking right, which means we've got a.
Put together the filing package, we've got a file that would state we've got a negotiated with state we've got to get it approved we've got and agree upon an effective date, which is always in the future from the date you get the approval. So there's a fairly long.
<unk> on the front end.
Any rate filing process up or down.
And so we really wouldn't have expected any of those increases to take effect in the third quarter.
As I mentioned, we've got 40 planned over the course of the next three quarters.
And.
Couple.
Two or three will likely take effect this month.
Several call. It another handful will take effect, probably before year end again, all subject to getting approvals.
From the states that we are working towards those effective dates with and then the remainder will be in the.
First or second quarter of next year. The few that we have lately to take effect.
In the back half of this year will represent 25, 30% of the.
<unk> volume, we have across the country. So it's a relatively small number but.
It should be impactful on a written basis, but again I'll just caution you. It takes time for that to earn into the book, but but we've started and we are making progress.
Okay. Thank you.
Our next question comes from the line at Paul knew some with Piper Sandler.
Good morning, Thanks for the call everyone.
Uhm.
Wanted to ask about social inflation, and if you believe or how we should think about the mechanism.
Regular CPI inflation.
Leaping into the social inflation side is it something where.
We should expect some sort of lag there.
Courts.
Assess the damages overtime.
A pug a morning.
I don't think it's entirely unrelated are uncorrelated, but I think it's it's less leveraged I think of.
Social inflation has been driven more by things like aggressive tactics by the plaintiff's bar in advertising and litigation finance things like that now of course that the whole debate on damages in any case starts with the underlying compensable damages and to the extent there's inflation in that <unk>.
Maybe the starting point goes up a little bit but.
So not completely uncorrelated bit, but also not so leveraged.
Alright, and then my second question unduly auto.
My question.
There seems to be efforts in the industry to effectively uhm replaced.
Credit, scoring with telematics.
And not just using together.
What do you think of those efforts and is that something that.
Travelers as a particular view.
Sure Paul It's Michael certainly there are.
There are conversations that linked it to I guess I would start by separating the two right. There are certainly conversations.
With state regulators and a handful I would say that are that are talking about and are actively.
Pursuing the removal of credit, scoring as a variable in pricing auto insurance.
The two most notable or Washington in Colorado.
Rado as a bill that was approved by the state legislature, that's in the rule making process.
Around removing credit score in that state and.
And the state of Washington.
Again pretty widely followed but commissioner kreidler issued an emergency rule to up to ban the use of credit scoring an auto insurance.
That route that odd emergency rule was actually just overturned by a judge in Washington earlier this month.
And so we're in the process and that the overturned by the judge is now being challenged by the commissioner. So there's there's a back and forth in Washington, those are probably the two most.
Widely viewed views on credit scoring.
As respects credit scoring in telematics, we would say is first of all credit is a is a powerful variable in pricing auto insurance, it's very predictive of claim experience and if you remove it then you have subs.
Subsidization and you're right plant in between higher risk drivers a lower risk drivers.
And in fact in the context of a telematics program their credit score and the telematics data are powerful together.
If you're in a situation, where you don't have credit and can't use credit telematics is very valuable probably becomes increasingly valuable.
And and that kind of a world were encouraged by the capability. We've got the tools we have.
The success of our intelligence program.
And the power that it has in segmenting.
Los experiencing in helping us segment pricing.
So.
It sounds like you're agnostic to to use in June.
I would say we are necessarily agnostic I think as Michael pointed out it is highly predictive and so.
<unk>.
Be supportive promote risk based pricing, but you end up with some subsidization and so it is what it is it. The fact is we compete without it in places like California, just fine and will continue to compete without it and in that world, having the data and scaled to invest in other rating methodologies.
Is important and we think we have that so so I think either way would be just fine.
Okay. Thank you <unk> I appreciate your help.
Thanks, Paul.
Our next question comes from that line at Josh Schenker with Bank of America.
Thank you for taking my question gets a lot more personal auto I I apologize.
I'm just wondering.
Like that are used car severity peaked in may.
May and then again in September and vehicle traffic levels seem to get back to normal by about may yet.
Two Q loss ratio impersonal auto was materially higher that'd be honest with the <unk> with mature higher than the two Q loss ratio.
Is there any entry year development and that.
What's the difference between the two Q in three Q.
Lost you guys have.
Josh I would say the differences sort of precisely what you just described so you've talked about driving levels in may which is part way through Q2, you've talked about severity and may which is part way through Q2, and so as we talked about in the second quarter, we saw frequency trending toward Pete prepaid.
MC levels throughout the quarter, which means that was below at the beginning of the quarter.
And similarly, some of the severity impact we've been describing.
Really started to impact the results.
In the back half of Q2 and into Q3. So that's really I think what's going on there and no no interrupt period 33 year.
Let's talk about Ryan Josh it's not it's not a catch up our second quarter loss pink looks pretty consistent with where we had coming out in the second quarter is really the difference of a full quarter of the higher frequency and severity Q3 versus Q too.
Great and your growth looks fairly strong I think.
We can all agree that the price is under price right. Now can you talk about growing your book at a period of time when.
The prices below right adequate levels.
Sure Josh.
I go again.
We've talked about pretty consistently right. Our goal is to profitably grow the portfolio over time.
We remain confident in our ability to do to do so and again as we've talked about really the.
Profit pressure.
At the moment really is timing and it's a mismatch between.
Our ability to get raped filed and approved and earned relative to the loss experience. We're seeing at this point in time, but we expect that's going to align with lost costs over time.
And we've we've season movies like this before right where we've.
We've written business, we've grown the business we've improved the profit on that business, we rode over time and so.
That's the path we are headed down.
As we do start to put more price in the market toward that impact growth on a go forward basis, certainly could but.
Again again, we're comfortable with our ability to have profitably grow the auto book overtime.
Do you think which I am.
Yep Yep go ahead.
Just to put a finer point on that we have this experience a few years ago impersonal lines and we ended up with a larger book a very profitable business and we would expect us to play out in exactly the same way.
So we're very pleased with the volume of putting on.
I'll leave it at that then thank you. Thank you.
Our next question is from that line at David.
With Evercore ISI.
Hi, Thanks, good morning.
I had a just a quick question on the Holdco cash balance.
It fell versus last quarter, but still well above your target I think it was 800 million is that still just a function of the debt that you raised I think it was last quarter.
Have you you just haven't put that down into the operating companies for growth.
Or or is that sort of.
Access capital at at the Holdco that we can think about.
Can be used for M&A or share repurchases are other users.
David I'm not too terribly worried about cash at the Holdco at any quarters at any quarters.
And we're really looking at overall capital position and still feeling very strong about that and I think you see that in in the capital actions that we took this quarter.
The decline from where we were we also because of the strength of the position that we started with didn't need to bring up as much.
The underlying companies.
We're not we're not signaling anything there with the variability in holding company liquidity, we're really just trying to make sure that we've got what we need to cover and if we've got a little more than that at any point in time is fine.
Got it okay. Thanks.
And then maybe a question just for Greg.
I was a little surprised that the workers comp net premium written is still down year over year.
I know you said that.
The rate is still slightly negative.
I guess could you maybe talk about some of the other drivers of the decrease I would think that there is some sort of wage inflation in there.
And the exposure base.
I would think is up versus last year, but maybe just just talk about the puts and takes takes there and when you think we should start to see some growth in workers comp net premium written.
Yeah.
Give me a little bit of color, what's underneath those the quarter number clearly as I said earlier, we still have a slight negative and right. So that's going to have a large weight. The overall net written premium Delta we had strong retention of the overall if there's an area that brought the number down was on a new business basis, and when we look into that.
The marketplace and particularly larger accounts for this quarter, where we saw the clearing price relative to our price tourists to make sure that we get an adequate value over the long term we didn't hit on some larger deal. So really is a functional disciplined underwriting. So the combination of all those drove drove that lane is sort of.
Got it thank you.
Our next question is from the line of Bryan Meredith.
Yes.
Yeah. Thank you very much just a quickly.
Occurs company just curious are we getting to a point, where maybe we start to see.
Lying loss ratio start can be stabilizer improve here given right versus trend or are we still a ways away from that happening.
Yeah.
It.
Los trend has been pretty benign and worker's comp, but it hasn't been negative has been positive and the rate. The overall pricing has been closer to zero. So so below that sauna.
If you look at a calendar year basis.
Being equal you'd expect some compression.
Of course, we've had a lot of pressure development. So the line has been has been.
You look back an accident you had more properly we would've predicted the time and.
And we would have predicted some quarters ago that we would have hit a bottom and made a term, but but again, we've had pretty good results in that line throughout the pandemic and so I think the outlook is probably going to continue to bounce around call at zero wish for a little bit longer before it before it makes it turn.
But it will it'll it'll it'll bounce around but it will make a turn to go north from there.
Great and then quickly.
You've talked a little bit about cyber and all this going on there with respect to tightening terms and conditions and rate et cetera, et cetera, I think he said that.
You are declining February now I would've thought this would be a really good time like maybe.
On the accelerated a little bit and.
Some more growth cyber maybe give us a little bit more perspective on what's going on there.
San from taken yeah. Thanks for the question, Brian Cyber floor remains strong it's consistent with broader demand in the marketplace, including first time buyers like I mentioned earlier in this elevated risk environment or hit ratios are understandably down given those dynamics, we've tightened underwriting requirements like multifactor.
Education like I mentioned were also aggressively pursuing needed right on both new and renewal. So that's the dynamic that's still out there in the market and our results.
Gotcha, so you're just pushing harder than the rest of the market is that what it is or people just not flying as much.
I think.
It's just a combination of we're pushing consistent with our strategies and others are executing on their strategies, but it's pretty well known how the cyber dynamic has been in the marketplace.
And I would also add two things one we've been very very disciplined about enforcing minimum cyber igene and I don't know that other markets are necessarily as disappointed about that so in that business leaves us, it's presumably going somewhere and given the profitability challenges in that line, we're just fine with that.
Great. Thank you.
Our next question comes from the line admire challenge with K K B W.
Great. Thank you I really appreciate your putting me in Michael.
Can you update us on.
Severity trends in personal auto liability, we've talked a lot about the physical damage. So I just wanted to get a sense of what's going on liability site.
Sure Meyer I would say, we talked a lot about property damage and liability because that's the place where it's really elevated relative to our expectations I think on the personal line side.
There are certainly is loss trend in bodily injury liability, but it's it's much closer to what we would have expected.
Okay, perfect and a brief follow up if possible I was hoping I could keys or parse out that two points that drank and talked about between.
The weather related losses and the.
I'm sorry.
And the Covid impact.
Bear stand.
At the risk of getting too granular, we'd rather not we'd rather not parse that out you could think of them as being fairly equal in terms of their contribution.
Okay. Thank you.
And we have time for I guess, one more question and we will take that question from Tracy G T with Barclays.
Hey, Thank you for telling me and just really quickly on the common carrier favorable impact Coney Island business insurance I'm looking at your 10 Kia.
And it looks like travellers benefited from Ricky claim settlement activity.
<unk> can be disruptions any judicial and relating to COVID-19.
So how much of that thought process played inter underlying b I combined ratio improving corner and you could could you contextualize how that maintains going forward.
Okay Tracy stand, so really what you're seeing in the in the current quarter.
Is is.
The impact on commercial auto and that's a frequency.
Event, what so what I think what we would expect their over time as we get to a full post pandemic recovery if things go back to the way that we're prepandemic I don't think we would expect that frequency benefit to persist I think the language. So.
If we could take it offline, but I think the language or reading out of the queue is more specific to the cash flows related to.
To operations in the quarter and that would be lower claim claim payments. If you look at page to encourage on a year to date basis. It's almost identical to we're paid to encourage was on a year to date basis for the first nine months of last year. When we were talking about the fact that ports were closed and it was taking a long time to get to get settled in South Dakota.
Okay.
I'll also Greg mentioned that you'd focus on your deductible attachment point couple of nights and exclusion and that's also really importing rather than you just looking at a blank right direction discussing so could you just let me know your view of lost Chang REIT adequacy, that's driving underwriting decision, which business line.
<unk> that was asking are the most exiting.
I'm not exactly sure what what you're trying to get out with that I think the point. We were trying to make is we are always very disciplined underwriters starting with risk selection and then evaluating the terms of every single deal that we underwrite paying attention to all the levers that contribute to price pre.
Unit of risk.
And so I think that's the point, we were trying to make those steps important it's not.
It is not overpowering to the results in any quarter, but those things compound over time.
And to the extent that we aren't making those types of changes on an individual risk. It will it will improve the the price per unit of risks that's not apparent in the production statistics.
And also.
That tends to unwind more slowly than say REIT unwind overtime, but I don't think we meant to make more of it than that.
Okay that sounds like just the normal course of business. Appreciate you taking my question.
Thanks, Jason.
And at this time I'll turn the call back over to Mr. Goldstein for any closing remarks.
Thanks, everyone for joining us today, we appreciate your time.
Lots and configuring counteract a next generation kind of the James.
Okay Conference call. Thank you for participating you may now disconnect.
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