Q3 2024 Travelers Companies Inc Earnings Call
Speaker Change: 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. Which time will be given instructions for the question and answer session?
Unknown Executive: We ask that you hold all questions until the completion of formal remarks, at which time will be given instructions for the question and answer session.
Unknown Executive: As a reminder, this conference is being recorded on October 17th, 2024.
Speaker Change: As a reminder, this conference is being recorded on October 17, 2024. 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.
Abbe Goldstein: 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 over a third quarter, 2024 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 Investor's section.
Abbe Goldstein: Thank you. Good morning and welcome to Travelers' discussion over a third quarter, 2024 results.
Abbe Goldstein: 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.
Abbe Goldstein: Speaking today will be Alan Schnitzer, Chairman and CEO, Dan Frey, Chief Financial Officer, and our three segment presidents, right to allows give business insurance, Jeff Klang 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 prepared remarks, and then we will take your questions.
Speaker Change: Speaking today, we'll be Alan Schnitzer, Chairman and CEO, Dan Frey, Chief Financial Officer, and our three segment presidents. Right to allow to give business insurance, Jeff Kling of Bond and Special Tinsurance and Michael Klein of Personal Insurance.
Speaker Change: 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 mark and then we will take your questions.
Abbe F. Goldstein: 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 implied in the forward-looking statements due to a variety of factors. These factors are described under forward-looking statements in our earnings press release and in our most recent 10-Q and 10-K filed with the SEC. We do not undertake any obligation to update forward-looking statements.
Speaker Change: 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.
Speaker Change: Our presentation today includes forward-looking statements, the company caution investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance.
Speaker Change: Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are described under forward-looking statements in our earnings press release and in our most recent ten-two and ten-k filed with the SEC. We do not undertake any obligation to update forward-looking statements.
Abbe F. Goldstein: Also, in our prepared 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 our investor section on our website.
Speaker Change: Also, in our prepared remarks or responses to questions, we may mention some non-gap financial measures. Reconciliation are included in our recent earnings press release, financial supplement, and other materials available in our investor section on our website. And now, I'd like to turn the call over to Alan Schnitzer.
Alan Schnitzer: 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.
Alan Schnitzer: I'd like to start by acknowledging the devastation caused by recent hurricanes, Helene and Milton. These were powerful storms; our hearts go out to all those who have been impacted. Of course, we send our thoughts and prayers, but we're also sending claim resources. From our National Catastrophe Center in Hartford, we're managing the deployment of hundreds of travelers' claim professionals, along with mobile claim offices and quick response vehicles. We've activated thousands more cross-trained colleagues across the country to support our local response. Our Catastrophe Response Model enables us to adjust virtually every claim with a Traveler's claim professional.
Alan Schnitzer: Thank you, Abbe. Good morning, everyone. And thank you for joining us today.
Alan Schnitzer: I'd like to start by acknowledging the devastation caused by recent hurricanes, Helena Milton. These were powerful storms in our hearts go out to all those who have been impacted. Of course, we send our thoughts and prayers, but we're also sending claim resources.
Alan Schnitzer: We are National Catastrophe Center in Hartford, re-managing the deployment of hundreds of travelers' claim professionals, along with mobile claim offices and quick response vehicles.
Alan Schnitzer: We've activated thousands more cross-trained colleagues across the country to support our local response.
Alan Schnitzer: Our catastrophe response model enables us to adjust virtually every claim with the Travelers claimed professional. And without resorting to independent adjusters, that results in a better outcome for our customers and distribution partners.
Alan Schnitzer: And without resorting to independent adjusters, that results in a better outcome for our customers and distribution partners. Thanks to these efforts in the advanced analytics and geospatial tools that we leverage, we're on track this year to meet our objective of resolving 90% of our claims from natural catastrophes within 30 days. That can make the difference between whether a customer of ours is able to celebrate the holiday season in their living room instead of a hotel room.
Alan Schnitzer: Thanks to these efforts in the advanced analytics and geospatial tools that we leverage. We're on track this year to meet our objective of resolving 90% of our claims from natural catastrophes within 30 days.
Alan Schnitzer: That can make the difference between whether a customer of ours is able to celebrate the holiday season in their living room instead of a hotel room.
Alan Schnitzer: I'd also like to express my deep gratitude to our claim organization. The entire team tirelessly delivers exceptional technical expertise and support to our customers. Thank you.
Alan Schnitzer: I'd also like to express my deep gratitude to our Klen organization.
Alan Schnitzer: The entire team tirelessly delivers exceptional technical expertise and support to our customers.
Alan Schnitzer: Demonstrating day in and day out, the value of the travelers promise.
Alan Schnitzer: Klenk to Results, we are very pleased to have generated outstanding Captain Bottom Line Results this quarter.
Alan Schnitzer: excellent underlying underwriting income, higher net investment income and net favorable prior year reserve development, all contributed to core income of more than $1.2 billion, or $5.24 per diluted share.
Alan Schnitzer: Generating Corps of Termin Equity of 16.6%.
Alan Schnitzer: Underline, underwriting income of $1.5 billion pre-tax, this ups 73% of the prior year quarter.
Alan Schnitzer: driven by record net-run premiums of $10.7 billion, up 10%, and an underlying combined ratio that improved 5 points to an excellent 85.6%.
Alan Schnitzer: Both underwriting income and underlying margins were strong in all three of our segments.
Alan Schnitzer: The underlying combined ratio in our business insurance segment improved nearly 2 points to an excellent 87.9%. And our bond and specialty business delivered a very strong underlying combined ratio of 85.6%.
Alan Schnitzer: Inline Combine Ratio and Personal Insurance improved 11.5 points due an exceptional 82.7%.
Alan Schnitzer: The Easter Vic segment results contributed to a reported, consolidated combined ratio that improved nearly 8 points to 93.2%.
Alan Schnitzer: According to investments, our high quality investment portfolio continued to perform well. With after tax net investment income up 16% to $742 million, driven by strong and reliable returns from our growing fixed income portfolio, and higher returns from our non-fixed income portfolio.
Alan Schnitzer: Our underwriting and investment results together with our strong balance sheet, enabled us to grow adjusted look for a year per share by 4% during the quarter. And that's after returning $496 million of excess capital to shareholders and continuing to make important investments in our business.
Alan Schnitzer: As we noshed another quarter of successful execution on a number of important strategic initiatives.
Alan Schnitzer: Turning to the top line, we grew net written premiums by 8% to 11.3 billion dollars.
Alan Schnitzer: The strong value proposition that we offer to our customers and distribution partners, along with outstanding execution by our colleagues in the field, contributed to our top-line success.
Alan Schnitzer: In business insurance, we grew net written premiums by 9% to more than $5.5 billion.
Alan Schnitzer: We know a premium change in the segment remains very strong, increasing to 10.5%. Driven by strong contributions from reliability coverage.
Alan Schnitzer: We know a rate change accelerated to 7.3% in the quarter and was steady or higher in every product law.
Alan Schnitzer: Even with the firm pricing environment, retention in the segment ticked up to 86%.
Alan Schnitzer: The combination of strong pricing and excellent retention reflects our deliberate execution, and a marketplace that is reacting in a generally disciplined way to the headwinds of social and economic inflation.
Alan Schnitzer: In bondage specialty insurance, we grew net written premiums by 7% to a record $1.1 billion.
Alan Schnitzer: We have a by excellent retention of 90% in our high quality management liability business and strong production in a market-leading surety business.
Alan Schnitzer: We go short in that written premiums by 7% from a very strong result in the prior year quarter.
Alan Schnitzer: We are very pleased to have generated terrific production results across our commercial segments where margins continue to be attractive.
Alan Schnitzer: That includes our ENS offerings, where we've grown net written premiums by 13% year-to-date.
Alan Schnitzer: In personal insurance, we were pleased to go net written premiums by 7% during by strong renewal price change in both auto and home.
Alan Schnitzer: The strong production results across our three segments are a reflection of our view that in order to achieve our objective of industry-leading returns over time, we need an effective strategy to grow profitably over time.
Alan Schnitzer: As we've shared before, we seek to achieve profitable growth by investing in franchise value.
Alan Schnitzer: Making sure that we offer the products, services, and experiences that our customers want to buy, and our distribution partners want to sell.
Alan Schnitzer: Also central to our growth strategy is our very granular approach to risk election, underwriting, and pricing, which we've discussed many times.
Alan Schnitzer: As a result of that approach, investments we've made over decades in leading data and analytics.
Alan Schnitzer: Our growth in insurance boasers correlates to returns.
Alan Schnitzer: In other words, generally speaking, the more attractive the returns in a business, the more we've been growing in short exposures in that business.
Alan Schnitzer: All of which is to say, travelers unique combination of franchise value and execution, yields very effective capital deployment, a high quality profitable growth.
Alan Schnitzer: The numbers speak for themselves. Over the last four years, we've grown our premium base by more than $13 billion. Nearly a 50% increase, while simultaneously improving our underwriting margins.
Alan Schnitzer: The result is that we've more than doubled our underlying underwriting income and increased our total underwriting income by more than 80%.
Alan Schnitzer: The combination of strong underwriting income and the reliable investment income from our substantial and growing investment portfolio makes for a powerful earnings engine.
Alan Schnitzer: That's what's driving our strong results this quarter of year to date, and that's what's driving our corporate turn on equity of 15.9% over the last 12 months.
Alan Schnitzer: And that's what gives us great confidence in the outlook for our business into 2025 and beyond. With that, please turn the call over to Dan.
Dan Frey: Thank you, Alan. I'm pleased to provide some additional color on an exceptionally strong quarter.
Dan Frey: For income for the third quarter was $1.2 billion in core return on equity was 16.6%. As we delivered another quarter of excellent underlying underwriting results, net favorable prior year reserve development and strong investment income.
Dan Frey: We're pleased to have once again generated record levels of earned premium this quarter and an excellent combined ratio of 93.2% and improvement of nearly 8 points.
Dan Frey: Inside of that, our underlying combined ratio improved five full points from last year's strong results.
Dan Frey: This combination of premium growth and underlying margin improvement led to our best ever underlying underwriting gain of $1.2 billion after tax, up $503 million or 74% from the prior year quarter.
Dan Frey: The expense ratio for the third quarter was 28.4% and reflects the benefits of our continued focus on productivity and efficiency, coupled with strong top-line growth.
Dan Frey: That brings the year to date expense ratio to 28.6% in line with our expectations.
Dan Frey: Our third quarter results include $939 million of pre-tax catastrophe losses, more than half of which relates to hurricane Halene, a devastating storm which made landfall in the last few days of the quarter.
Dan Frey: For Travelers, the financial impact of Haleen was greater in Georgia and the Carolinas than in Florida.
Dan Frey: Turning to prior year reserve development, we had total net favorable development of $126 million pre-tax.
Dan Frey: In Business Insurance, the annualist best-less review resulted in a charge of $242 million. Excess best-less, Business Insurance had net favorable PID of $151 million, driven by favorability and workers' com.
Dan Frey: and Bond and specialty, net favorable PYD of $36 million was driven by another quarter of better than expected results in fidelity and surety. Personal insurance had $181 million of net favorable PYD, with favorability in both home and auto.
Dan Frey: After tax, net investment income of $742 million was up 16% from the prior year quarter.
Dan Frey: Fixed maturity and I.I. was again higher than the prior year, quarter, and in line with our previously shared outlook, reflecting the benefit of both higher average yields and significant growth in the portfolio.
Dan Frey: Returns in the non-Six-10 Comfort Folio, we're also above the prior year quarter.
Dan Frey: In terms of our outlook for fixed income and II, including earnings from short-term securities, we now expect approximately $700 million after tax for the fourth quarter.
Dan Frey: For 2025, we expect approximately $2.9 billion after tax, our highest level ever, beginning with approximately $700 million in the first quarter of 2025 and growing to approximately $760 million for the fourth quarter.
Dan Frey: Turning to capital management, we generated our strongest ever level of quarterly operating cash flows at 3.9 billion dollars, bringing in the year to date figure above $7 billion. Also our strongest ever September year to date results.
Dan Frey: Interest rates decreased during the quarter and as a result, our net unrealized investment loss decreased from $4 billion after tax at June 30th to $2.1 billion after tax at September 30th.
Dan Frey: I just did book value per share, which excludes net unrealized investment gains in losses, was $131 in 30 cents at quarter end, up 7% from year end and up 13% from year ago.
Dan Frey: We returned $496 million of excess capital to our shareholders this quarter, comprising share repurchases of $253 million in dividends of $243 million. We have approximately $5.3 billion of capacity remaining under the share repurchase authorization from our Board of Directors.
Dan Frey: While it obviously did not impact our third quarter results, let me make a quick comment on Hurricane Milton.
Dan Frey: It's still early days in terms of assessing our ultimate losses, but at this point we have a preliminary range of between 75 and 175 million dollars of pre-tax losses, net of reinsurance.
Dan Frey: To some things up, our third quarter in year-to-date results illustrate the fundamental earnings power that is resulted from our multi-year focus on growth, that attracted margins, and our rock solid balance sheet.
Dan Frey: In addition to best-ever levels of net-written premium and net-earn premium, are diversified portfolio of businesses delivered a terrific underwriting result.
Dan Frey: Thanks to our best-ever underlying combined ratio, clearly demonstrating that we're positioned for success even during periods of weather volatility like we in the industry have experienced.
Dan Frey: In fact, despite having absorbed the highest ever level of catastrophe losses for the first nine months of the year, our September year-to-date core earnings per share of $12.43 is a record high.
Speaker Change: and with that, I'll turn the call over to Greg for a discussion of business insurance.
Greg: Thanks Dan. This is insurance at another strong quarter in terms of both top and bottom line results.
Greg: The second income for the third quarter was $698 million. Up about 50% from the prior year quarter, driven by improved prior year development and higher underlying underwriting income.
Greg: The combined ratio of 95.8% was strong and improved from the prior year quarter by more than 3 points.
Greg: Similar to the past several quarters, we're extremely pleased with the quarters exceptionally strong underlying combined ratio of 87.9%.
Greg: which improves by about two points from the prior year quarter, primarily reflecting the benefit of earn pricing.
Greg: This was our best third quarter underlying result ever.
Greg: Turning to the top line, we grew net written premiums by 9% to an all-time third quarter high of more than $5.5 billion.
Greg: Renewal Premium Change was once again historically high at 10.5%.
Greg: With renewal retains that increase nearly a point sequentially to 7.3% driving the majority of the strong pricing.
Greg: Retention remained excellent at 86% and new business of $680 million was the second highest third quarter result ever, just slightly trailing last year's record third quarter.
Greg: In terms of pricing, we're pleased to sustain strong levels of renewable premium change, which increased sequentially from the second quarter.
Greg: Strong pricing was broad-based with renewable premium change, adder close to double digits in every line other than workers' cop.
Greg: With respect to pure renewal rate change, we're pleased that the exceptional granular execution by our field organization reflects and appropriately balances the current return profile and environmental trends for each line.
Greg: Umbrella and Otto continue to lead the way with raiding creases well into double digits.
Greg: In terms of sequential renewal, re-change, every line was at or higher than the second quarter.
Greg: Even with these strong pricing levels, retention remains strong as I mentioned earlier, a reflection of marketplace discipline in the face of industry headwinds.
Greg: That's for the individual businesses, in select, renewal premium change remains strong at 12.3%. Almost 2.5 points from the third quarter of last year.
Greg: Renewal rate change of 5.5% was up sequentially from the second quarter and up more than 2.5 points from last year's third quarter.
Greg: Retention tick down as we continue to intentionally optimize our CMP risk return profile in a couple of targeted geographies.
Greg: New Business was healthy and near historical highs.
Greg: Overall, we remain pleased with granular pricing and underwriting execution driving profitable growth in select.
Greg: In middle market, renewal premium chains was exceptionally strong at 10.6 percent, about a point higher than the second quarter driven by renewal rate chains which reached 8 percent.
Greg: The re-increases were broad-based with more than three-quarters of our middle market accounts, but achieving positive rate change.
Greg: And at the same time, the granular execution was excellent, with meaningful spread from our best performing accounts to our lower performing accounts.
Greg: We're pleased that retention also remained exceptionally even with these levels of pricing crisis.
Greg: Lastly, new business of $364 million was our highest ever third-quarter result. And we're pleased with the risk of elections and the strength of pricing on the accounts that we added to the portfolio.
Greg: To sum up, business insurance had another terrific quarter. We're pleased with our execution in driving strong financial and production results while continuing to invest in the business for long-term profitable growth. With that, I'll turn the call over to Jeff.
Jeff Kling: Thanks Greg.
Jeff Kling: Fondens Specialty posted another strong quarter on both the top and bottom lines.
Jeff Kling: We generated segment income of $222 million and an excellent combined ratio of 82.5%.
Jeff Kling: We also delivered a very strong 85.6% underlying combined ratio in the quarter.
Jeff Kling: The increase of 4.9 points from last year's quarter reflects a modestly elevated expense ratio primarily related to the Corvus acquisition and the impact of earned pricing.
Jeff Kling: We expect the expense ratio to remain elevated for a few more quarters as we integrate corporate's operation and as we ramp up and earn premiums from its attractive book of business.
Jeff Kling: Turning to the top line, we grew net written premiums by 7% the quarter to a record high $1.1 billion.
Jeff Kling: and a high quality domestic management liability business, we again delivered excellent retention of 90%.
Jeff Kling: With positive renewal premium change that reflects terrific execution by our field organization and our focus on retaining our profitable book of business.
Jeff Kling: We're pleased that we grew new business by over 80% from the prior year quarter to a record 113 million dollars through the by-cortbus.
Jeff Kling: 9 months following the closing of our Corbus acquisition, we continue to feel terrific about the talent, capabilities, and business that we've added to our cyber portfolio.
Jeff Kling: We're deploying Corvus's proprietary underwriting and risk-controlled capabilities across our cyberbook.
Jeff Kling: Helping our customers remediate vulnerabilities and avoid cyber losses.
Jeff Kling: Our distribution partners have endorsed our go-to-market strategy, which includes both admitted and excess and surplus lines cyber offerings.
Jeff Kling: and realizing the benefit of our high-quality travelers paper and brand, we've considerably improved Corvus's legacy renewal retention.
Jeff Kling: In short, we couldn't be more pleased with the addition of the Corvus team to the Travelers family.
Jeff Kling: Turning to our market-leading security business, we grew net written premiums by 7% from a very strong level in the prior year quarter.
Jeff Kling: This growth reflects a robust construction environment, continued scrolling demand for our surety products and services, and outstanding execution by our team, and growing our high credit quality portfolio.
Speaker Change: So we're pleased to have once again delivered strong top and bottom line results this quarter in bond and specialty insurance and now I'll turn the call over to Michael
Michael Klein: Thanks Jeff and good morning everyone. In personal insurance, we are very pleased with our third quarter results, which continues to reflect the positive impact of our rate and non-rate actions across the portfolio.
Michael Klein: In the quarter, we delivered significantly improved segment income of $384 million and a combined ratio of 92.5%.
Michael Klein: Driven by excellent underlying, by an excellent underlying underrated result and strong net favorable prior year reserve development.
Michael Klein: The underlying combined ratio of 82.7% reflects an 11.5-point improvement compared to the prior quarter, primarily driven by the benefit of our pricing in both auto and home, as well as favorable non-cotached to be weather.
Michael Klein: Continued strong price increases, drill 7% growth in net written premiums, as we continue our focus on improving profitability and property, while seeking profitable growth in auto.
Michael Klein: In Auto, we're pleased with another quarter of improved profitability.
Speaker Change: The third quarter combined racial was very strong at 93.4%, despite 4.9 points of catastrophe losses, primarily related to Hurricane Helene.
Speaker Change: The underlying combined ratio of 91.2% improved 9.4 points compared to the prior year quarter.
Speaker Change: The improvement continues to be driven by the benefit of higher and pricing and lower losses from physical damage coverage.
Speaker Change: This quarter's underlying underwriting, this quarter's underlying result also included a two-point benefit related to the re-estimation of prior quarters in the current year.
Speaker Change: Taking a step back, the year-to-date underlying combined ratio of 93.7% reflects considerable progress in his compelling evidence of our return to profitability in auto.
Speaker Change: Looking ahead to the fourth quarter of 2024, it is important to remember that the fourth quarter auto underlying lost ratio has historically been about six to seven points above the average for the first three quarters, because of winter weather in holiday driving.
Speaker Change: In homeowners and other, the third quarter combined ratio of 91.5% improved by nearly 25 points compared to the prior year quarter. Primarily as a result of a lower underlying combined ratio, as well as lower catastrophe losses in higher favorable prior year development.
Speaker Change: Hurricane Helene and a severe convective storm in July drove catastrophe losses in a quarter.
Speaker Change: The underlying combination of 74.4% improves 13.6 points compared to the prior year quarter.
Speaker Change: Approximately three-quarters of the year over your favorability was related to non-cutastory weather and non-weather losses.
Speaker Change: The benefit of earned pricing also contributed to the improvement.
Speaker Change: Turning to production, our results reflect our ongoing efforts to balance profitability and growth across the portfolio.
Speaker Change: We're pleased with our progress as we execute a very granular state-by-state strategy.
Speaker Change: In domestic auto, retention of 83% remains strong. Renewal premium change of 12.8% continued to moderate as intended.
Speaker Change: Renewal Premium Change will continue to decline, reflective of improved auto-profitability.
Speaker Change: Auto-new business premiums continue to reflect our success in achieving positive auto growth in many states.
Speaker Change: While auto-new business premium was down slightly in total, the decline reflects our focus on auto-profitability in a few remaining challenging states, and the crossline impact of our action-stominated property exposure in high-risk cat geographies.
Speaker Change: We're comfortable with this trade-off in the near-term and remain confident in our ability to profitably grow our portfolio over time.
Speaker Change: In homeowner's and other, retention of 85% and renewal premium change of 14.6% remains strong and consistent with reason quarters.
Speaker Change: We expect we will bring the M-Chain to generally remain at this level in the fourth quarter.
Speaker Change: As we intended, homeowners knew business premium and policies and force continued to decline compared to the prior quarter.
Speaker Change: Also, as we intended, the decline was most significant in high risk catastrophe geographies, reflecting continued actions to reduce exposure in mitigate volatility. Through improved risk selection, restricted binding authority, heightened eligibility requirements, and higher deductibles.
Speaker Change: The sum up for the personal insurance segment overall, this was a great quarter, reflecting disciplined execution by our team and further progress toward delivering a profitable growing portfolio of personalized business over time.
Speaker Change: Now I'll turn the call back over to Abbe. Thanks, Michael. We're happy to open up for your questions. Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one and your telephone keypad to raise your hand and join the queue. We ask you, please limit yourself to one question and one follow-up.
Speaker Change: Your first question comes from the line of Gregory Peters from Raymond James. Your line is open.
Gregory Peters: Okay, Good Morning, Everyone.
Gregory Peters: So, I guess for the first question I'll focus on domestic business insurance.
Gregory Peters: and the renewal premium change, which continues to be quite strong even through the third quarter. I guess where I'm going with this is given...
Gregory Peters: is the strong improvement in the underlying results at what point will that renewal premium change begin to moderate.
Gregory Peters: Greg, I'm wondering if we're not going to try to forecast what that's going to be, but I would say, you know, there are headwinds out there in terms of inflation, there's uncertainty out there in terms of the...
Gregory Peters: Political and regulatory environment, the geopolitical environment, so on and so forth. So I'll share that with you as a kind of thing so we think some of the markets reacting to, but we're not going to project it.
Gregory Peters: Okay, for an authentic shot, give us a shot. I guess the other question, you know, listening to the comments about...
Speaker Change: you know, the strong results, the best third quarter of our business insurance, et cetera, and in the free cash flow, I guess I want to pivot back to capital management. I know you're not going to disclose M&A on the call, but...
Speaker Change: It seems like a balanced approach, including capital return to shareholders and M&A, or investment in organic, is...
Speaker Change: is a high likelihood that it could happen, but considering the cash flow numbers, should we just plow that all in a sharing purchase or what are you thinking?
Speaker Change: Yeah, Greg, you know, I'll just tell you philosophically for every single dollar of capital that we generate, our first priorities to invested back in the business in whatever way we can do that to create your older value. Whether that's organic growth, investing in talent or capabilities, products, et cetera.
Speaker Change: or whether it's inorganic. So that's our first objective and we try to do that.
Speaker Change: But it's not our capital, it's investor capital and we try to be very, very good stewards of shareholder to capital. And so we've got a pretty high bar for what we do with that capital and we don't think we can generate it back in the business and create a return, we're going to return it to shareholders.
Speaker Change: Okay, congrats on the results.
Speaker Change: Thanks, Greg.
Speaker Change: Your next question comes from a line of David Motto-Matter from EverCourt, ISI. Your line is open.
David Motto-Matter: Thank you for your time.
David Motto-Matter: sort of had a follow-up on the prior question on the VI renewal rate change. So it was good to see the acceleration.
David Motto-Matter: Quarter of a quarter after it's decelerated that passed three quarters.
Speaker Change: I guess I'm just wondering Alan.
Speaker Change: You know, if you come in on how sustainable you feel like this rate environment is, and if you think the hurricanes over the last few weeks will change the trajectory on the property side, which I know is, it's kind of been a standout, a drag on that RRC recently, and then just relatedly, you know, how that impacts your appetite for growth within property, but also in liability lines where, you know, it's still an uncertain environment.
Speaker Change: Yeah, so there's a lot there. David, let me start and if I don't get to it all follow up, but um...
Speaker Change: You know, in terms of pricing, I would say that we expect renewable price change continue to be positive and strong for all the reasons I shared in response to Greg's question now.
Speaker Change: Whether that means it goes up a little bit from here, or down a little bit from here, I don't really know, but I think the message we would give you for all those reasons is positive and strong. You mentioned the comment about property and that price weighing, I guess I would say...
Speaker Change: It...
Speaker Change: You got to take that property pricing together and connect with the returns of the property line, so it's not like...
Speaker Change: The returns are struggling, and the price is falling, the price change in property is a reflection of the returns in that line. So it's totally rational and totally appropriate. We're not going to share our property pricing strategy and we'll just have to wait and see where the market goes on that. But clearly these terms are a reminder of the potential of volatility and the things that we've all got to be thoughtful about in committing capital to risk.
Speaker Change: Did I get that David any I missed?
Speaker Change: and then just on the, it sounds like the liability lines in auto and an umbrella.
Speaker Change: It sounded like they accelerated a bit sequentially in the quarter and just wondering, I guess.
Speaker Change: You guys have made the reserve changes last quarter, it didn't sound like there was any noise of this quarter from post that, but just your comfort level in terms of leaning in to growth in some of those lines.
Speaker Change: Yeah, so you know we, I think we shared last quarter that even after the charge we took in umbrella we were comfortable with the returns in umbrella even last quarter
Speaker Change: and we remain comfortable with the returns and again, we're going to execute on a very granular account-type count basis, but given where the returns are, given...
Speaker Change: You know, we, we, we've shared before and we talked a lot about this last quarter.
Speaker Change: Great, thank you. Thank you, Steve.
Speaker Change: Good morning.
Speaker Change: It might be an easy answer, but I don't think I heard any call out of them.
Speaker Change: Maybe one time items helping the underlying and business insurance, the underlying loss ratio.
Speaker Change: Michael Stan, that's right, it's pretty clean, pretty clean, pretty straightforward quarter, and really we wouldn't call out anything that you'd need to adjust for.
Speaker Change: Okay, for my follow-up.
Speaker Change: So, I just felt my fault being personal lines.
Speaker Change: You have said in your paper marks that you are, I think, making some changes to deductible I believe, I guess, you know, from some of the super regionals are talking about kind of trying to...
Speaker Change: Overhaul.
Speaker Change: Zerb.
Speaker Change: Brucking the, you know, basically the deductibles in an a major way, increasing deductibles, maybe rough depreciation schedules, or just a higher percentage deductible for, for, for replacement. Are you, you know, is, is Traverse taking more of a slower approach to that or are, are you making any kind of meaningful changes to your terms of conditions and personal lines and certain geographies?
Michael: Turn Mike, it's Michael, I would say yes, we're very active in making meaningful changes to our terms.
Michael: Conditions for property, particularly in cat exposed geographies. It's really what I was referring to.
Michael: when I talked about one of the drivers of the shrink and property is.
Michael: and specifically to your question about deductibles. We have moved. In some states we have deductibles that are dollar denominated and other states we have deductibles that are percentage but we've made significant moves particularly in Catexpo states in the Midwest along those lines. Again, among the other things I mentioned which are restricting eligibility, doing quite a bit of read underwriting of the portfolio to really try to manage that exposure.
Speaker Change: Okay, I guess that, you know, that would maybe change the way we need to think about modeling. This may be the law ratio versus the cat ratio, but I guess I'll follow up offline. Thank you.
Speaker Change: Thank you.
Speaker Change: You are next question, comes from a lineup of Rob Cox from Goldman Sachs. Your line is open.
Speaker Change: Thanks for taking my question. So obviously on the renewal premium change, you know, great numbers overall, I did just want to ask on select. It looks like there was a little pressure on a little bit lowered new business growth and retention. If I look back relative to a few quarters ago, I just want to ask on that.
Gregory Peters: Gordon Robb, this is Greg. Yeah, as I shared with you in my comments, we're constantly optimizing, you know, our book of business in terms of getting the right equation between risk and reward. When you look at the webcast, first of all, 2023, we had some historical highs.
Gregory Peters: Retention number throughout that period. And we are, you know, similar to the question Mike just asked around deductibles that's driven based on severe convective storm and a new peril that's been very dynamic and much more of a frequent weather event. And so like Michael and his team, our team and small commercial has also been fine-tuning that particular peril and the coverage associated with that. And that's why we saw a little bit of the tech down in retention. I called that out my prepared comments for you.
Speaker Change: God, thank you.
Speaker Change: And then I just wanted to ask, as a follow-up on, you don't just think about catastrophe, losses. I don't think you guys provide an explicit guidance on this, but I was just curious if you guys could give us any help and thinking about how we could size. Your annual expected catastrophe load, any color thoughts you could provide would be helpful.
Speaker Change: Rob Good Morning in Finland. In our proxy statement, we do give it admittedly for the prior year, so it won't give you our current year view, but you can see the prior year. One thing we've shared is we've had a couple of years now of pretty heavy cat losses.
Speaker Change: We continue to factor those more recent years into our thought process, and we continue to weigh more recent years more heavily. And so that influences the way we think of our catalysts going forward. We haven't yet given an outlook for cats.
Speaker Change: Thank you.
Speaker Change: Your next question comes from a line of elite screen span from Wells Fargo. Your line is open.
Speaker Change: Hi, thanks. Good morning. My first question. I think it kind of was addressed in one of the earlier questions, but can you just confirm, I guess, that no regerving action was taken within G.L. in the quarter, you didn't call it out, so it sounds like there was nothing, but I just want to confirm that.
Dan Frey: Yeah, at least it's Dan, so I'll reiterate what I said, which was, you know, so X's best is in PI, we were favorable about 151.
Dan Frey: That was driven by workers' comp. It wasn't entirely workers' comp. So there were some other lines that moved, but they were small amounts and the net of that was a good guy as well.
Speaker Change: Thank you. And then my follow-up, my second question is on, you know, personal auto, you know, when you guys, you know, the 93, 70 year to date and recognizing like there is some seasonality in the Q4 but...
Speaker Change: This puts you guys right at a good spot relative to mid-90s, which is kind of what folks typically target on the auto side. So is this like the sustainable one-rate margin as we think about the business with rate slowing and just your view of overall last friend within person auto?
Speaker Change: Charlie Sitz Michael, I would say certainly the year-to-date results point you to a view that across the book were rate adequate, were very pleased with the results and the returns.
Speaker Change: I shared that reminder again because it's pretty dramatic, seasonality inside the book and I just wanted to make sure that folks were aware of it. But what broadly speaking, again, please with and really rate adequate across the book and auto at this point.
Speaker Change: Thank you.
Speaker Change: Your next question comes from a line of Brian Meredith from UBS. Your line is open.
Brian Meredith: Yes, thanks. I could just follow up on that one. If you read out a clip across your book, should we start to expect that Paul, she counts going to grow here in the near future.
Michael Klein: Great, great question Brian, it's Michael.
Michael Klein: We are hard at it, right? I try to give you the pieces impacting auto growth as we sit here today and again, in states where we don't have some of the other complications, we are seeing new business growth and again, that's many states across the country. We're working hard at the states where we don't yet have adequate rates.
Michael Klein: and we're making progress, but obviously we're subject to those rates getting filed and approved.
Michael Klein: before those flipped into that category, but, again, we're hard at work on that, and then the other element is the crossline impact of our work to improve property risk reward. That will take some more time, but, again, we're making strong progress there.
Michael Klein: And so again, as I've said, the last couple of quarters, our focus in auto is the profit will be growing.
Michael Klein: Our focus in home is to improve profitability, given our focus on portfolio business, those two things kind of go hand in hand and that's what I mean when I say we're trying to balance growth and profitability across the book, but it's definitely a strong focus of ours.
Speaker Change: Thank you. And then, once we're great, I'm just curious, any kind of insight into what workers comprising might look like going forward. I think we've heard that maybe a state or so, you might get some positive stuff out of ratings bureaus.
Speaker Change: Yeah, Brian , this is Greg. Yeah, if I look at workers' comp as a portfolio, I think we're going to see a continuation of what we're seeing right now, and that really is driven based on the strong experience on the line, and we've certainly as leaders in that line have demonstrated that. And so when you look at the Bureau's NCCI being the largest one, you know, what we're looking at for a forecast in 2025 for a lost-cost recommendation, it's very similar to what we saw in 2020. 24, of course, that doesn't apply to every individual account, we'll have e-mods and et cetera on the individual account, but I think it's going to kind of stay with the levels that it's at right now.
Speaker Change: Thanks for your attention.
Speaker Change: Your next question comes from the line of Josh Shanker from Bank of America. Your line is open.
Josh Shanker: Yeah, more questions for Michael, very popular today.
Josh Shanker: I wanted to talk a little about first the fable development in the personal line segment. What years were it throwing off the fable development? And does that mean to some extent you may have over react on pricing in some states?
Dan Frey: Hey Josh, it's Dan, so I'll start with the P.Y.D.
Dan Frey: with the PYD story. Part of the PYD story, remember.
Dan Frey: The end of 2023 was really favorable in personal insurance and it was also brand new. The fourth quarter was terrifically strong from a profit perspective. It wasn't fully developed. We posted a really good number in the fourth quarter last year. But we were allowing for the uncertainty that for some of those claims going to come later, where some of the ones that...
Dan Frey: That did come with more severity, nine months further on. We're just more confident.
Dan Frey: But if I look at the spread of accident years, you know, in personal insurance, favorable prior year, reserved development, there is favorability in recent years, but if I look at the last 10 years, there is favorability in each and every one of the last 10 years.
Speaker Change: and I'll leave the pricing questions for Michael. And Josh, I would say, in terms of did we overreact on pricing? Again, I would reiterate that the common I made in response to a lease, which is, as we look across the book, we're rate adequate.
Speaker Change: and I'd also point you to the Combined Ratio for the year to date if you add back prior your development to try to get to an accident in your type number, that number is 97.4. So I don't think that would be an indication that we've overshot.
Speaker Change: And so we've had two quarters in our own now, with about 17080.
Speaker Change: A million dollars of prior-to-fable development in the personal line segment. A lot of times there's a certain trend and when that trend deviates, it throws off-fable development.
Speaker Change: for all these...
Speaker Change: Sweet!
Speaker Change: Things that you've noticed that make this degree of favorable development probably less likely to be sustained, but the trends continue. Or could we continue to see hundreds of million dollars of favorable development if just the trends keep playing out? I hope I'm asking the question appropriately.
Dan Frey: Josh, it's Dan, I think I get it, and I'm glad you asked it. I mean, I think if there's two words that I would not put in a sense together, it's prior your reserve development and trend or run rate. You know, and I think we tell you this pretty consistently, we look at all the data as it comes in every quarter, we do thorough reviews of every line every quarter, we're just trying to get it right.
Speaker Change: What you've seen probably in the last couple of years when lost costs were elevated in 22 and 23?
Speaker Change: We say we want to get it right, but in getting it right, we want to acknowledge the fact that if there's an elevated level of uncertainty, we're going to contemplate in that in our reserve. And now, if you've seen some of the inflationary pressures come back down to a more normal level, some of those years have matured and aged out, that's sort of what you're seeing.
Speaker Change: Bye!
Speaker Change: You may or may not believe it, I literally don't have a view of whether prior year reserve development is going to be higher lower or sideways in prior and PI in the next several quarters, but that's the way we think about it.
Speaker Change: Venge for the answers appreciated.
Speaker Change: Thanks for watching.
Speaker Change: And we have one more question and that question comes from a line of Michael Phillips from Oppenheimer. Your line is open.
Michael Phillips: Thanks, good morning everybody. I'm going to go back to the V.I. casually Reynolds Freystein's for a second, from another side. You know, when you have gotten more rate today than last quarter.
Michael Phillips: and then I hear your answers down on about uncertainty and geopolitical risk and social and economically. We've talked about that so for years. I guess when you're getting more rate today than last quarter, we're such strong current core margins. Does it mean element, your concerns on those things they answered are more today than they were last year or the year before when you started talking about them?
Speaker Change: It's a mean that we're more concerned about it? No, I'm not concerned about it. Yes, you're concerned about it. The answer is that you gave, you know, okay, that's the question. Are you more concerned today than maybe you were last year?
Speaker Change: I wouldn't say that we're more concerned today, you know, you know...
Speaker Change: You can't really think about this sort of static at a point in time, we're thinking about this, you know, looking out the windshield at the future and, you know, lost trying to certainly positive and, and we'd like price and to keep up with that, but I would not say that we're more concerned today.
Speaker Change: You know, I do think one thing you get with travelers is, you know, pretty early detection and reaction to changes in loss activity and, you know, so I, I, I don't know where it's going to go, but we feel pretty good about the actions that we've taken, you know, so far this year.
Speaker Change: Okay, thanks. A quick one, maybe for Jeff perhaps any updates you can share with I guess lost trends in the management liability section. Thanks.
Speaker Change: Abbe Goldstein, Daniel Frey,
Speaker Change: Not specific to Los Trenno, I called out in this script for you and again this Jeff Klenk, we said that the replacing had an unfavorable impact on the underlying combined ratio.
Jeff Klenk: I point out that the pricing strategy is a function of rate adequacy, the returns and the business have been excellent. Our renewal pricing reflects deliberate execution. I feel great about the renewal retention percentage at 90%.
Jeff Klenk: Thanks for the question.
Speaker Change: and that concludes our question and answer session. I will now turn the call back over to Abbe Goldstein for some final closing remarks.
Alan Schnitzer: Thank you all for joining us this morning.
Alan Schnitzer: Appreciate the questions, and as always, if there's any follow-up, please get in touch with investor relations. Have a good day.
Abbe Goldstein: Thank you. Thank you all for joining us this morning. Appreciate the questions and as always, if there's any follow-up, please get into it with the Investor Relations. Have a good day.
Speaker Change: This concludes today's conference call. Thank you for your participation. You may now disconnect.