Q2 2022 Travelers Companies Inc Earnings Call
Speaker 1: And.
Speaker 2: Good morning ladies and gentlemen. Welcome to the second quarter results teleconference for travelers. We ask that you hold all questions until the completion of formal remarks at which time. Instructions for the question and answer session. As a reminder, this conference is being recorded on July 21st, 2022.
Speaker 2: At this time, I would like to turn the conference over to Ms. Abby Goldstein, Senior Vice President of Investor Relations, Ms. Goldstein Yubivkin.
Speaker 3: Thank you. Good morning and welcome to Travelers discussion of our second quarter 2022 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.com under the investors section.
Speaker 3: Speaking today will be Alan Schnesser, Chairman of the EO, Dan Fry, CFO , and our three segments presidents, Greg Tuzlowski of Business Insurance, Jeff Klank of 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 will refer to the webcast presentation as they go through prepare to March, and then we will take your questions.
Speaker 3: Before I turn the call over to Alan, I'd 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 is not a guarantee of future performance. Actual results may differ materially from those expressed or implies in the forward-looking statements due to a variety of factors.
Speaker 3: The factors are described under forward looking statements in our earnings press release and in our most recent 10Q and 10K files with the SEC. 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. Reconciliation are included in our recent earnings press release, financial supplement, and other materials available in the investor's section on our website.
Speaker 3: And now I'd like to turn the call over to Alan Schnitzer.
Speaker 4: Thank you Abby. Good morning everyone and thank you for joining us today.
Speaker 4: We are pleased to report a very strong second quarter, including an excellent bottom line result, double digit top line growth in all three segments.
Speaker 4: Strong and improved profitability in our commercial business segments.
Speaker 4: Progress addressing the environmental headwind facing the personal insurance industry, a meaningful contribution from net-of-ess Min-Com, and another quarter of progress on the number of important strategic initiatives.
Speaker 4: Core income for the quarter was $625 million, or $2.50 per diluted share, generating core return on equity of 9.3%.
Speaker 4: These results are driven by record neturn premiums of $8.3 billion of 9% over the prior year quarter and a solid underlying combined ratio of 92.8%. The results are driven by record neturn premiums of $8.3 billion of 9% over the prior year quarter
Speaker 4: Given the challenging environmental issues impacting the personal insurance industry, these consolidated results reflect the benefit of our diversified portfolio of businesses. And we have our diversified portfolio of businesses.
Speaker 4: For the six months, core income was ahead of the prior year, $1.66 billion, and excellent first half result. For the six months, the core income was ahead of the prior year, $1.66 billion, $1.66 billion, $1.66 billion, $1.66 billion,
Speaker 4: We're particularly pleased with the continued strong underlying results in our commercial businesses.
Speaker 4: Looking at the two commercial segments together, the combined B.I. B.S.I. underline combined ratio was 90.7% for the quarter, and the improvement of a point in the prior quarter.
Speaker 4: As expected, results in personal insurance were impacted by elevated severity in both auto and home.
Speaker 4: If you'll hear from Michael, we're on the right track in addressing the environmental issues.
Speaker 4: Our excellent operating results together with our solid balance sheet We are now able to grow the adjusted book value for sure by 8% over the past year.
Speaker 4: After making important investments in our business, Andrew turning excess capital to shareholders.
Speaker 4: During the quarter, we returned $725 million of access capital to our shareholders, including $500 million of our sharey purchases.
Speaker 4: Turning to the top line, thanks to excellent execution by our colleagues in the field and the strong franchise value we offer to our customers and distribution partners.
Speaker 4: We grew net written premiums by 11% this quarter to a record $9 billion.
Speaker 4: With, as I mentioned, each of our three segments growing double digits.
Speaker 4: insurance net written premiums grew by 10%.
Speaker 4: Renewal premium change is 10.3%. That's the 4th highest quarterly renewal premium change going back more than 15 years.
Speaker 4: We will premium change with the original rate change of 4.9%.
Speaker 4: Both measures moved up from the preceding quarter.
Speaker 4: Protection remains very strong at 86%.
Speaker 4: We have a high quality book of business and keeping it as a priority.
Speaker 4: Also as we've shared previously.
Speaker 4: Strong retention is a sign of a rational and stable pricing market.
Speaker 4: Underneath the headline numbers, execution in terms of rate retention at a segmented level was excellent.
Speaker 4: In modern specialty insurance, net written premiums increased by 13%.
Speaker 4: driven by excellent production in both our surety and management liability businesses.
Speaker 4: Shirting that written pre-maint through up 24%.
Speaker 4: Management Liability premiums were up 7%, driven by a rural premium change of 8.8%, retention increased to a very strong 88%, and strong new business.
Speaker 4: In personal insurance, net written premiums increased by 12%.
Speaker 4: Uno Premium James is immediately higher both year-over-year and sequentially in auto and home owners.
Speaker 4: we continued XQ to improve returns.
Speaker 4: Fill their more shortly from Greg Jeff and Michael about our segment results.
Speaker 4: Turning to investments, our high-quality portfolio generated net investment income of $595 million after tax for the quarter.
Speaker 4: reflecting reliable results from our fixed income portfolio, and another quarter of stronger terms from our non-16-income portfolio.
Speaker 4: Speaking of investments, given the potential for a difficult economic environment to have.
Speaker 4: We include it on page 19 of the webcast presentation, a slide breaking down the composition of our investment portfolio.
Speaker 4: consistent with our longtime focus on risk-adjusted returns.
Speaker 4: We're underweight compared to most in terms of risk assets as a percentage of shareholders' equity.
Speaker 4: Our business philosophy has served us well over many years and through many different market cycles.
Speaker 4: It starts with asset allocation. We're at 90% of our 80 billion dollar portfolios invested in fixed income securities. Investing in fixed income securities.
Speaker 4: That sets us apart.
Speaker 4: Inside that, we also have relatively high allocation to municipal bonds.
Speaker 4: where the default rate has been meaningfully lower as compared to corporate bonds.
Speaker 4: Even within munis we're discriminating.
Speaker 4: We are invested in only about 1,000 municipal issuers out of an estimated 80,000.
Speaker 4: For each of the all of our municipal bond holdings are rated AA- or higher.
Speaker 4: Our corporate bond portfolio is curated with the same level of discipline.
Speaker 4: For to all of it is investment grade, and within that we are meaningful overweight, double A in single A credits and meaningfully underweight triple B credits.
Speaker 4: During times of economic distress, credit quality is key.
Speaker 4: And then sometimes foreseeable and sometimes unforeseeable, lead up to those times.
Speaker 4: Once bred widening, volatility increases.
Speaker 4: The market doesn't allow for graceful repositioning of a portfolio.
Speaker 4: So we stay true to the strategy to the service well over decades.
Speaker 4: or level of actual impairment so over long period of time that are remarkably low.
Speaker 4: In 2008 and 2009, when the Moody's default percentage reached 2 to 2.5%, our default rate never reached 1%.
Speaker 4: And in the COVID-charged turmoil of 2020, when the Moody's default rate hit 1%, our portfolio default rate was around 10 basis points.
Speaker 4: In giving the credit quality of our portfolio, the vast majority of fixed income investments to maturity.
Speaker 4: Decreases and markets value to rising interest rates as the market is experiencing now.
Speaker 4: have a little to no impact on how we run the business or how we view the strength of our capital positions.
Speaker 4: In terms of our investments and alternative asset classes, we don't reach for yield.
Speaker 4: Our private equity portfolio is well-diversified across strategies, sectors, and general partners. Integrated. partners.
Speaker 4: Our own real estate is high quality and entirely unlever.
Speaker 4: And then we have little in the way of hedge funds and higher risk assets.
Speaker 4: We see potential short-term headwinds from reaching declines in the equity markets.
Speaker 4: We also see near-term and potentially ongoing tailwinds from higher interest rates that will benefit our returns going forward.
Speaker 4: You'll hear from Dan shortly about how the recent rise in interest rates positively impacts our outlook for fixed income NIIs.
Speaker 4: Like everything we do, it all starts with our town.
Speaker 4: We have a world-class investment team that is responsible for executing on our investment philosophy.
Speaker 4: Those who position making authority have worked with us and with each other for an average of around 20 years.
Speaker 4: That reinforces the long-term perspective we bring to our investment portfolio.
Speaker 4: I'm always grateful for their excellent work, but particularly at times like this, I'm reminded of the wisdom of our approach.
Speaker 4: It is contributed to a long history of industry living returns and industry low volatility.
Speaker 4: To sum things up, building on our excellent results in the first half of the year, we're confident about our outlook.
Speaker 4: Benefiting premieres as strategic investments as part of our Forward Transform call to action.
Speaker 4: guided by our decades of experience successfully executing in a variety of macroeconomic conditions.
Speaker 4: and supported by an outlook for improving fixed income returns.
Speaker 4: We remain well positioned to deliver industry leading returns and shareholder value over time.
Speaker 4: With that, I please turn the call over to Dan.
Speaker 5: Thank you all.
Speaker 4: For income for the second quarter was $625 million.
Speaker 4: and core return on equity was 9.3%.
Speaker 4: These results were very strong, especially considering the high level of cat losses.
Speaker 4: which is typical seasonality for us in the second quarter.
Speaker 4: While core income declined from the prior year quarter, remember that the prior year quarter included a very benign level of cat losses,
Speaker 4: and record returns from the non-fixed income portfolio.
Speaker 4: Our second quarter results include $746 million of pre-tax catastrophe losses.
Speaker 4: And while cats were higher year over year, they were not outsized relative to our model estimates for the second quarter.
Speaker 4: On a year-to-date basis, we've accumulated $935 million of qualifying losses.
Speaker 4: toward the aggregate retention of $2 billion on our property aggregate to tax-free exo-ill treaty.
Speaker 4: Our after-tax underlying underwriting game of $444 million was down slightly from the prior year quarter. The
Speaker 4: We generated record levels of earned premium and reported an underlying combined ratio of 92.8%.
Speaker 4: Improvements in the underlying combined ratio in both business insurance and bond and specialty were more than offset by an increase in the underlying combined ratio in personal insurance. Greg, Jeff, and Michael will provide more detail on each segment's results in a few minutes.
Speaker 4: At the same time that we continue to make significant investments in strategic initiatives.
Speaker 4: The second quarter expense ratio improved 70 basis points from last year to 29%.
Speaker 4: driven by the combination of our focus on productivity and efficiency and strong top-line growth.
Speaker 4: We had been expecting the full year expense ratio to be around 29.5%, but now expected to be more like 29% this year, getting down to that level a little sooner than we had expected. The full year expense ratio was around 29% this year, and now expected to be more like 29% this year, getting down to that level a little sooner than we had expected.
Speaker 4: Turning to prior year reserve development.
Speaker 4: We had total net favorable development of $291 million pre-tax in the second quarter.
Speaker 4: In business insurance, net favorable PYD of $202 million was driven by better than expected loss experience in workers' comp across a number of accident years and favorable movement in CMP.
Speaker 4: partially offset by an increase in general liability reserves, including for runoff operations.
Speaker 4: In Bond and Specialty, net favorable PID of $73 million was driven by better than expected results and fidelity insuride.
Speaker 4: Personal insurance had $16 million of net favorable PID with modest movement in both auto and home.
Speaker 4: After tax net investment income decreased by 13% from the prior year quarter to $595 million.
Speaker 4: who were pleased that returns in our non-fixed income portfolio were strong, but as expected they were less favorable than last year's record quarter.
Speaker 4: Fixed-maturity NII was again higher than in the prior year quarter, as the benefit of higher invested assets more than offset the impact of lower average yields during the quarter.
Speaker 4: With interest rates having moved higher during the second quarter, we are again raising our outlook for fixed income and II, including earnings from short-term securities.
Speaker 4: to approximately $470 million after tax in the third quarter, and then to $495 million in the fourth quarter.
Speaker 4: New money-reached as of June 30th are about 100 basis points higher than what is embedded in the portfolio.
Speaker 4: So, NII should continue to improve as the portfolio gradually turns over and as the portfolio continues to grow.
Speaker 4: Recall that results for our private equities, real estate partnerships, and hedge funds are generally reported to us on a one-quarter lag.
Speaker 4: While not perfectly correlated, our non-fixed income returns directly follow the broader equity markets, which were down significantly during the second quarter.
Speaker 4: So the first half of the year, the S&P 500 was down 21%, but about three quarters of that decline occurring in Q2.
Speaker 4: Accordingly, we expect that to impact our not-fixed income results next quarter.
Speaker 4: Starting to capital management, operating cash flows for the quarter of $1.4 billion were again very strong.
Speaker 4: All our capital ratios were at or better than target levels, and we ended the quarter with holding a company liquidity of approximately $1.6 billion. The capital ratio of approximately $1.6 billion.
Speaker 4: Interest rates increased and spreads continued to widen during the quarter, and as a result, our net unrealized investment loss increased from $1.4 billion after tax at March 31st to $3.8 billion after tax 1530. $1.3 billion after tax 1530.
Speaker 4: As we've discussed in prior quarters, the changes in unrealized investment gains and losses do not impact how we made our investment portfolio.
Speaker 4: We regularly hold fixed income investments to maturity.
Speaker 4: The quality of our fixed income portfolio remains as Alan discussed very high.
Speaker 4: And changes in unrealized gains and losses have little impact on our statutory short-plus or regulatory capital requirements. In short-plus or regulatory capital requirements.
Speaker 4: Adjusted book value per share, which excludes net unrealized investment gains and losses, was $112.37 at quarter end.
Speaker 4: up 2.4% from year end and up 8.2% from a year ago.
Speaker 4: We return $725 million of capital to our shareholders this quarter, comprising share repurchases of $500 million and dividends of $225 million. And dividends of $225 million.
Speaker 4: We have approximately $3 billion of capacity remaining under the most recent share of our Repurchase Authorization from our Board of Directors.
Speaker 4: It's also worth noting that in June we early renewed our $1 billion credit facility for a five-year term.
Speaker 4: While the size of the facility and the group of participating banks was unchanged, we reduced our annual cost of the facility primarily through lower undrawn pricing.
Speaker 4: while also improving other terms and conditions.
Speaker 4: In a time of rising borrowing costs and tightening credit terms, our financial strength, strong operating performance, and consistent fiscal discipline, still enabled us to obtain very favorable terms.
Speaker 4: In a time of rising borrowing costs and tightening credit terms, our financial strength, strong operating performance, and consistent fiscal discipline still enabled us to obtain very favorable terms. You can see all the details in our 10Q. You can see all the details in our 10Q. You can see all the details in our 10Q.
Speaker 4: Similarly, during the second quarter we issued a new four-year CAT bond, providing uninterrupted coverage upon the expiration of our prior CAT bond.
Speaker 4: The new bond 1.34 limited.
Speaker 4: Increases the amount of coverage available to $575 million. The recently expired cat bond had provided $500 million worth of coverage. The recently expired cat bond had provided $500 million worth of coverage.
Speaker 4: Specific terms are shown on page 20 of the webcast presentation, and we're very pleased with the result. We're very pleased with the result.
Speaker 4: Here again, our disciplined underwriting and consistent outperformance in the property line enabled us to increase our coverage and attain a reasonable rate online at a time when some parts of the market are finding reinsurance capacity harder to come by.
Speaker 4: Also on page 20 of the webcast presentation you'll find a summary of our July 1st reinsurance renewals.
Speaker 4: The structure of our main CAT reinsurance program is generally
Speaker 4: And while as expected, we did see some price increase. It wasn't in line with the price increases where obtaining on the direct property premiums will reign, so there's no adverse impact on margins. The price increase will reign, so there's no adverse impact on margins.
Speaker 4: It's also worth noting that we increase the coverage under our Northeast property tree by $150 million.
Speaker 4: to $750 million part of $850 million above the same $2.25 billion attachment point.
Speaker 6: What.
Speaker 4: So to sum it up, we had an excellent quarter with double-digit premium growth in all three segments, solid underwriting profitability, and an improved outlook for fixed income NII, all of which bodes well for our future returns.
Speaker 4: And with that, I'll turn the call over to Greg for a discussion of business insurance.
Speaker 4: Thanks Dan. Business Insurance continues to have a strong 2022 with another terrific quarter in terms of both financial results and execution in the marketplace.
Speaker 4: Second quarter segment income was $666 million. Bump about 4% from the prior year quarter, driven by higher net favorable prior year reserve development, and higher underline underwriting income. And higher underline underwriting income.
Speaker 4: The quarter's very strong underlying combined ratio of 92.4% was about a point better than the second quarter of 2021, driven by improvement in the expense ratio resulting from the combination of the leverage from higher earned premiums and the benefits of our strategic focus on productivity and efficiency.
Speaker 4: The underlying loss ratio was about flat to the prior year quarter, reflecting the benefit of higher earn pricing as well as elevated property loss activity in the current quarter.
Speaker 4: Net-written premiums were often all domestic markets in lines of business reaching $4.4 billion for an increase of 10%.
Speaker 4: Premiums benefitted from strong, renewal, premium change and retention.
Speaker 4: Both of which were once again historically hot.
Speaker 4: Turning to domestic production for the quarter.
Speaker 4: Renewal premium change of 10.3% was once again exceptionally strong.
Speaker 4: RTC includes renewal rate change of 4.9%, which was up a half a point from the first quarter in exposure growth of almost 6%. In exposure growth of almost 6%.
Speaker 4: Retention was very strong at 86%.
Speaker 4: New business premium was about $500 million in the quarter.
Speaker 4: We're pleased with these production results in our strong execution in the marketplace.
Speaker 4: Given our high quality book, as well as several years of segmented rate increases and improvements in terms of conditions, we're thrilled to continue to produce historically strong retention levels.
Speaker 4: The rate gains we achieved in the quarter reflect deliberate execution given the significant improvements in profitability across the portfolio, while continuing the price for the persisting headwinds and uncertainty in the current environment.
Speaker 4: As always, we will continue to execute our granular pricing, careful management of deductibles, attachment points, limits, sublimits, and exclusions to achieve profitable growth. And exclusions to achieve profitable growth.
Speaker 4: Ask for the individual businesses.
Speaker 4: In select, renewal premium change was a strong at over 9%, while retention of 83% was up three points from the prior year quarter.
Speaker 4: New business was up 8% from the prior year quarter, driven by the continued success of our BOP 2.0 product.
Speaker 4: In addition to contributing to growth, the new Bob product is also contributing to improve margins in this business through industry-leading segmentation.
Speaker 4: So overall for Select, we're pleased with the improvement in profitability levels, as well as the continued momentum in new business growth.
Speaker 4: In the market, renewable premium change remains very strong. At over 10%, while retention remains historically high, 88%.
Speaker 4: Underneath the RPC of 10%, renewal rate change of 4.8% was up a half a point from the first quarter, while exposure growth was nearly 6%.
Speaker 4: To sum up, business insurance had a terrific first half of the year. We continued to deliver strong results while investing in capabilities to enhance our data and analytics leadership. Thank you.
Speaker 4: digitize the commercial transaction and develop sophisticated and relevant products to drive profitable growth for the future.
Speaker 4: With that, I'll turn the call over to Jeff.
Speaker 7: Thanks, Greg.
Speaker 4: On this specialty had a terrific quarter on both the top and bottom lines. Segment income was $228 million, up 22% from the prior year quarter.
Speaker 4: driven by a higher level of net favorable prior year reserve development and higher underlying underwriting income.
Speaker 4: The underlying combined ratio was an excellent 82.2%, an improvement of 1.2 points from the prior year quarter.
Speaker 4: Turning to the top line, debt written premiums grew a very strong 13% in the quarter to a record high with contributions from all our businesses.
Speaker 4: To best make sure it posted exceptional 24% growth in the order driven by larger average bond premiums.
Speaker 4: In domestic management liability, we're pleased that we drove a two-point improvement in retention.
Speaker 4: while renewal premium change of 8.8% remains strong following six straight double-digit quarters.
Speaker 4: We're also pleased that we increase new business 16% from the prior year quarter.
Speaker 4: So both top and bottom line results for bond and specialty were terrific this quarter.
Speaker 4: Reflecting excellent execution across our business and the value of our market leading products and services to our customers and distribution partners.
Speaker 8: And now, I'll turn the call over to Michael.
Speaker 9: Thanks Jeff, good morning everyone.
Speaker 9: For the second quarter, personal insurance reported a combined ratio of 111%.
Speaker 9: While it's not unusual for us to generate an underwriting loss in the second quarter, given it typically has the highest weather-related loss activity,
Speaker 9: This quarter's results were also impacted by the inflationary pressure that we and the industry have been experiencing for the past few quarters.
Speaker 9: In total, the combined ratio increased 11.5 points compared to the prior year quarter, and included a higher underlying combined ratio, higher catastrophe losses, and lower favorable prior year reserve development.
Speaker 9: The five-point increase in the underlying combined ratio reflects elevated loss severity in both automobile and homeowners and other, and in comparison to a low level of automobile losses in the prior year quarter.
Speaker 9: The dash fee losses were nearly five points higher than in the prior year quarter, but not out of line with our assumption for second quarter catastrophes.
Speaker 9: Net written premiums for the quarter grew 12 percent, driven by higher renewal premium changes in both domestic automobiles and homeowners and others.
Speaker 9: In automobile, the second quarter combined ratio was 104.3% and the underlying combined ratio was 101.8%.
Speaker 9: an increase of about 10 points relative to the priority recorder.
Speaker 9: The increased reflects elevated vehicle replacement and repair costs.
Speaker 9: To a lesser extent, the increase is also a result of a comparison to a prior year quarter that still reflected lower loss.
Speaker 9: Lower claim frequency related to the pandemic.
Speaker 9: Our primary response to the environmental challenge of inflation is higher price.
Speaker 9: We are pleased with our actions to increase rates over the past few quarters and remain confident in our ability to achieve further increases.
Speaker 9: As we have indicated in past quarters, it will take some time for rate actions to fully earn into our results.
Speaker 9: In homeowners and other, the second quarter combined ratio was 118%, and it included 29 points of catastrophes.
Speaker 9: Primarily from severe wind and hail events across several regions of the US.
Speaker 9: The underlying combined ratio for the quarter was 90.3%, comparable to the prior year quarter.
Speaker 9: We continue to experience loss severity related to a higher loss severity related to a good combination of labor and material pricing increases.
Speaker 9: But that was largely offset by various items, including a comparison to a prior year quarter that included elevated down weather office.
Speaker 9: as well as the current quarter benefits of earned pricing.
Speaker 9: Turning to quarterly production, we continue to make excellent progress in achieving pricing increases.
Speaker 9: For the best of autumn of the Alruwell Premium change was 6.3% Up a full three points from the first quarter of 2022.
Speaker 9: We continue to increase renewal premium changes and expect RPC to reach double digits by the fourth quarter.
Speaker 9: For domestic homeowners and other, renewal premium change increased about a point and a half from the first quarter to a record high of 13.5%.
Speaker 9: The increase in renewal premium change was from both higher insured values and increased rate.
Speaker 9: While our primary focus is on approving profitability, we're not distracted from continuing to invest in capabilities to sustain our success.
Speaker 9: For example, in the quarter, we introduce new artificial intelligence-enabled aerial imagery to enhance our property underwriting and risk selection, while simplifying the quoting process for agency customers.
Speaker 9: This is just one example of how we continue to advance our sophistication and risk of guest expertise as part of our innovation agenda.
Speaker 9: With our focus on performing, on both performing and transforming, we remain confident in our ability to improve profitability over time while continuing to build the business for the future. While continuing to build the business for the future.
Speaker 9: Now I'll turn the call back over to Abby.
Speaker 3: Thank you, and we are ready to open up for Q&A.
Speaker 2: Thank you. At this time, I would like to remind everyone in order to ask a question, press star 1 on your telephone keypad.
Speaker 2: Here first question comes in Michael Phillips from Morgan Stanley . Please go ahead.
Speaker 4: Thank you, good morning everybody. I guess first question on auto for personal auto. It feels like your rate activity has been a little bit later to take hold in peers and maybe still a little bit below lost friends. I guess I want to see if you agree with that. And if so, kind of two-part question to that. Just how do you view your profitability the current book in auto? You're taking on some good new business there. So how's the profit of the current book? And then I guess we've seen some actions from others in prior.
Speaker 9: prior to your development, and I guess just confidence that that's not gonna be the case for you guys. Sure, so I'll take the rate activity question. This is Michael Klein, and then Dan will probably talk about prior period development. So Michael, I think we've talked about rate pretty much every quarter for the last three or four. As I said in my prepared remarks, we're pleased with our progress. There are certainly some peers who have reported bigger headline rate numbers than we have, although when we look at the overall marketplace and compare.
Speaker 9: our rate filing activity and our rate levels and our rate increase levels with the broader marketplace.
Speaker 9: We're largely in line with the overall industry, if not a little bit ahead of the industry average. Again, there's a couple of peers in particular that have talked about bigger headline numbers than we have. But in aggregate, we continue to be very active on the rate filing front, continue to incorporate new data into our indications. And as I mentioned, our outlook is we're confident in our ability to continue to increase pricing.
Speaker 9: to the point where we think RPC for personal auto will exceed double digits or get into double digits in the fourth quarter. So we continue to drive to improve profitability and make progress. And it turns to the new business.
Speaker 9: You know, the 318 this quarter is up about 6% from the prior year quarter. More of that increases from RPC now than it was a quarter before. And as you look at the PIF growth, it is starting to decelerate responding to the rate we're putting into the marketplace. So, you know, that's sort of the trajectory we're on. And again, the priority is to continue to drive pricing to improve profitability. And I'll turn over to Dan to talk about PID.
Speaker 10: I might get stand. So on the PYD question, I guess I'd bring you back to...
Speaker 10: You know actually years 20 and 21 when we were talking about, you know, seeing favorability
Speaker 10: Waterloo frequency driven, but we were seeing favorability, in personal auto, we were seeing favorability in commercial auto, we were seeing favorability in non-COVID claims in the workers' comp line. And we said at the time that we were recognizing some of that favorability in our results, but that there was also uncertainty in the environment. And one of the things we talked about was uncertainty around what the ultimate severity of some of those claims. And we said at the time that there was uncertainty of those claims.
Speaker 10: might be an NPI we talked specifically about the fact that
Speaker 10: claims were happening at higher speeds and we were seeing some more to their end. So we said pretty consistently in 2020 and in 2021 that we were being cautious in our reserving in order to make sure that we were allowing for the additional level of uncertainty that we felt.
Speaker 10: was possible and so at least so far that the way things are playing out seems to bear that out.
Speaker 9: Yeah, and Michael, this is Michael Klein again. I just want to add one other comment on the pricing conversation, which is we get a lot of conversation about the headline rate number that people are getting today. It's also important, and we've talked about this in the past, to look back at the history, and our renewal premium change in personal auto never went negative. We didn't talk about that as much back then when some other carriers had renewal premium change that was negative. So...
Speaker 4: The starting point matters, I guess, is the point that I would add. Thanks for your question. Yeah, absolutely. Yes, perfect. No, thank you guys both for that. That's very helpful. Second question, switching gears, completely switching gears then, on comp. Is there been any change in mix of the type of claims you've seen recently in comp, either mixed by permanent versus temporary or partial versus sort of that kind of mixed change? That might, in fact, impact the closure rates of your claims due to the faster or slower the path gear.
Speaker 10: Hi Michael, this is Greg. We haven't seen any real material mix change. Of course, as we went through the pandemic, we had a certain mix of claims. And so as you normalize that, if we look at our claim mix today, the pre-pandemic, there isn't any real material change.
Speaker 1: Thank you.
Speaker 11: Okay, thank you, Yosk.
Speaker 2: Your next question comes from Alex Scott from Goldman Sachs. Please go ahead.
Speaker 12: Hi, good morning. I was hoping you could just comment on just the overall outlook for business insurance margins and for further underwriting margin improvement. Certainly we can look at your renewal rate changes and we can think about loss costs, which I think have got to be getting impacted at least some by the CPI inflation that we're seeing. But there's obviously parts that aren't quantifiable for us and we'd just be interested in understanding some of those pieces.
Speaker 13: As that earns in, we would expect some improvement from there. Let me just caveat that with all things are never the same. And so this quarter, for example, we're calling out some elevated level of property loss activity. And it was just a couple of quarters ago when we were calling out favorable property loss activity. And we were calling out favorable property loss activity.
Speaker 13: So, you know, that kind of stuff is always going to be a little episodic. But, you know, when we look at the factors that we would consider to be, you know, run rate for lack of a better word, we look at what pricing is, and what we think loss trend is, we think the outlook, again, from a pretty good place is positive.
Speaker 12: And for my follow-up question, you know, I think you mentioned higher insured values when you're talking about the personal lines business, but I'd just be interested on the business insurance side of things, you know, the growth's coming in pretty nicely there as well. You know, we can see the exposure units going up. I mean, how impactful are sort of the audits around the insured values for the growth and how much...
Speaker 12: Do you expect that to be helping the top line here?
Speaker 10: Yeah, Alex, this is Greg. Yeah, clearly our underwriters are looking at terms and conditions and insured values in this environment and constantly trying to get the right insurance to value on the exposure to the right and on both new business and renewal. And so that's been an active lever very similar to the personal insurance side. That's more on the transactional side and on the flow side of select. We do have an inflationary protection guard that works.
Speaker 10: actively managing to make sure that that keeps up with the inflation environment. So very much an active management lever for us on the business insurance side.
Speaker 11: Yeah, let's thank you.
Speaker 2: Yeah next question, some Greg Peters from Remmon James, please go ahead.
Speaker 14: Yeah, good morning. The first question I had, you know, is around, but the market seems to be projecting or anticipating a recession either later this year or next. And I was wondering if you could talk about how you might think business insurance and domestic bond and specialty might perform and where the areas of pressure might be if there is indeed a recession. And then.
Speaker 14: Related to that, I'm just curious, you know, as you sort of strategize how you might change your approach to management of the company if this were to come to pass.
Speaker 13: Thanks for the question and let me just make a couple of general comments and feel free to follow up if I don't scratch the edge. But in a recession, we're going to do what we do. We serve our customers, we serve our distribution partners, we take care of our communities, we take care of our employees. And so from that perspective, it's business as usual for us.
Speaker 13: Now, we ensure the output of the economy, so we'd expect some impact to the top line, and that's gonna impact everybody. But we're pretty well positioned. The work we've done to improve productivity and efficiency positions as well. And we've got the resources and financial strength, to continue to make investments in our business without interruption. In terms of credit sensitivity, as I shared in my prepare remarks, the investment portfolio is very high quality, I credit quality as is assured in business.
Speaker 13: So I guess the only other point I would make an inter-recession, again, it expects some maybe pressure on the top line, but if history is any guide, at least from the commercial businesses, maybe you get some relief on lost rent.