Travelers Companies (NYSE:TRV) reported its third-quarter 2024 earnings, significantly surpassing analysts' expectations with an EPS of $9.15 compared to the forecasted $6.56. The company's revenue also exceeded projections, reaching $12.01 billion against an anticipated $10.84 billion. In response, Travelers' stock experienced a notable premarket increase, reflecting investor optimism.
Key Takeaways
- Travelers' Q3 2024 EPS of $5.24 per diluted share exceeded expectations.
- Revenue reached $12.01 billion, surpassing forecasts.
- Stock price increased by 3.9% in premarket trading.
- Strong renewal premium changes across insurance segments.
- Continued integration of Corbus acquisition in cyber offerings.
Company Performance
Travelers demonstrated robust performance in Q3 2024, with core income rising to $1.2 billion. The company's net written premiums saw an 8% increase, totaling $11.3 billion. This growth was supported by strong renewal premium changes in business and personal insurance segments, reflecting the company's disciplined response to market conditions.
Financial Highlights
- Revenue: $12.01 billion, up from forecasted $10.84 billion.
- Earnings per share: $5.24 per diluted share, exceeding expectations.
- Core return on equity: 16.6%.
- Net written premiums: $11.3 billion, an 8% increase.
- After-tax net investment income: $742 million, up 16%.
Earnings vs. Forecast
Travelers reported an EPS of $9.15, significantly surpassing the forecast of $6.56, marking a 39.5% surprise. This performance indicates a strong quarter compared to previous periods, reflecting effective management and strategic initiatives.
Market Reaction
Following the earnings release, Travelers' stock rose by 3.9% in premarket trading, reaching $248.48. This movement contrasts with the previous close of $239.16 and highlights positive investor sentiment. The stock's performance is notable given its 52-week range of $200.21 to $269.56.
Outlook & Guidance
Travelers expects continued positive renewal price changes and anticipates after-tax net investment income of approximately $2.9 billion for 2025. The company remains focused on profitable growth and managing property exposure in high-risk areas.
Executive Commentary
CEO Alan Schnitzer emphasized the company's proactive approach amid economic uncertainties, stating, "We're not going to try to forecast what that's going to be. But I would say there are headwinds out there in terms of inflation." Schnitzer also highlighted the strategic priority of reinvesting capital back into the business.
Q&A
During the earnings call, analysts inquired about Travelers' pricing strategy and growth prospects. Executives reiterated their focus on maintaining competitive pricing and expanding in the auto insurance segment, with confidence in future profitability.
Risks and Challenges
- Economic uncertainty and inflation could impact pricing strategies.
- Potential losses from natural catastrophes like Hurricane Milton.
- Competitive pressures in the insurance industry.
- Regulatory changes affecting insurance operations.
- Market volatility influencing investment income.
Full transcript - Travelers Companies (TRV) Q3 2024:
Conference Operator: Good morning, ladies and gentlemen. Welcome to the 3rd Quarter Results Teleconference for Travelers. We ask that you hold all questions until the completion of formal remarks. At which time, we will be given instructions for the question and answer session. 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. Abby Goldstein, Senior Vice President of Investor Relations. Ms. Goldstein, you may begin.
Abby Goldstein, Senior Vice President of Investor Relations, Travelers: Thank you. Good morning, and welcome to Travelers' discussion of our Q3 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 Investors section. Speaking today will be Alan Schnitzer, Chairman and CEO Dan Frey, Chief Financial Officer and our 3 segment Presidents, Greg Tyslowski of Business Insurance, Jeff Klein 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. 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 ks filed with the SEC. We do not undertake any obligation to update forward looking statements. Also in our prepared 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 our Investors section on our website.
And now, I'd like to turn the call over to Alan Schnitzer.
Alan Schnitzer, Chairman and CEO, Travelers: Thank you, Abby. Good morning, everyone, and thank you for joining us today. I'd like to start by acknowledging the devastation caused by recent hurricanes Helene and Milton. These were powerful storms and 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 Travelers' Claim Professional and without resorting to independent adjusters. That results in a better outcome for our customers and distribution partners. Thanks to these efforts and 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. 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, demonstrating day in and day out the value of the Travelers Promise. Turning to results. We are very pleased to have generated outstanding top and bottom line results this quarter.
Excellent underlying underwriting income, higher net investment income and net favorable prior year reserve development all contributed to core income of more than $1,200,000,000 or $5.24 per diluted share, generating core return on equity of 16.6%. Underlying underwriting income of $1,500,000,000 pretax was up 73% over the prior year quarter, driven by record net earned premiums of $10,700,000,000 up 10% and an underlying combined ratio that improved 5 points to an excellent 85.6%. Both underwriting income and underlying margins were strong in all three of our segments. The underlying combined ratio in our Business Insurance segment improved nearly 2 points to an excellent 87.9 percent, and our Bond and Specialty business delivered a very strong underlying combined ratio of 85.6%. The underlying combined ratio in Personal Insurance improved 11.5 points to an exceptional 82.7%.
These terrific segment results contributed to a reported consolidated combined ratio that improved nearly 8 points to 93.2%. Turning to investments. Our high quality investment portfolio continued to perform well with after tax net investment income up 16 percent to $742,000,000 driven by strong and reliable returns from our growing fixed income portfolio and higher returns from our non fixed income portfolio. Our underwriting and investment results together with our strong balance sheet enabled us to grow adjusted book value per share by 4% during the quarter, and that's after returning $496,000,000 of excess capital to shareholders and continuing to make important investments in our business as we notched another quarter of successful execution on a number of important strategic initiatives. Turning to the top line, we grew net written premiums by 8% to $11,300,000,000 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.
In Business Insurance, we grew net written premiums by 9% to more than $5,500,000,000 Renewal premium change in the segment remains very strong, increasing to 10.5%, driven by strong contributions from the liability coverages. Renewal rate change accelerated to 7.3% in the quarter and was steady or higher in every product line. Even with the firm pricing environment, retention in the segment ticked up to 86%. 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. In Bond and Specialty Insurance, we grew net written premiums by 7% to a record $1,100,000,000 driven by excellent retention of 90% in our high quality management liability business and strong production in our market leading surety business.
We grew surety net written premiums by 7% from a very strong result in the prior year quarter. We are very pleased to have generated terrific production results across our commercial segments where margins continue to be attractive. That includes our E and S offerings where we've grown net written premiums by 13% year to date. In Personal Insurance, we were pleased to grow net written premiums by 7% driven by strong renewal price change in both Auto and Home. 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.
As we've shared before, we seek to achieve profitable growth by investing in franchise value, making sure that we offer the products, services and experiences that our customers want to buy and our distribution partners want to sell. Also central to our growth strategy is our very granular approach to risk selection, underwriting and pricing, which we've discussed many times. As a result of that approach and investments we've made over decades in leading data and analytics, our growth in insured exposures correlates to returns. In other words, generally speaking, the more attractive the returns in a business, the more we've been growing insured exposures in that business. All of which is to say, Traveler's unique combination of franchise value and execution yields very effective capital deployment, a high quality profitable growth.
The numbers speak for themselves. Over the last 4 years, we've grown our premium base by more than $13,000,000,000 nearly a 50% increase, while simultaneously improving our underwriting margins. The result is that we've more than doubled our underlying underwriting income and increased our total underwriting income by more than 80%. The combination of strong underwriting income and the reliable investment income from our substantial and growing investment portfolio makes for a powerful earnings engine. That's what's driving our strong results this quarter year to date, and that's what's driving our core return on equity of 15.9% over the last 12 months.
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. Thank you, Alan.
Dan Frey, Chief Financial Officer, Travelers: I'm pleased to provide some additional color on an exceptionally strong quarter. Core income for the Q3 was $1,200,000,000 and core return on equity was 16.6 percent as we delivered another quarter of excellent underlying underwriting results, net favorable prior year reserve development and strong investment income. We're pleased to have once again generated record levels of earned premium this quarter and an excellent combined ratio of 93.2 percent, an improvement of nearly 8 points. Inside of that, our underlying combined ratio improved 5 full points from last year's strong result. This combination of premium growth and underlying margin improvement led to our best ever underlying underwriting gain of $1,200,000,000 after tax, up $503,000,000 or 74% from the prior year quarter.
The expense ratio for the Q3 was 28.4% and reflects the benefits of our continued focus on productivity and efficiency coupled with strong top line growth. That brings the year to date expense ratio to 28.6% in line with our expectations. Our 3rd quarter results include $939,000,000 of pretax catastrophe losses, more than half of which relates to Hurricane Helene, a devastating storm which made landfall in the last few days of the quarter. For travelers, the financial impact of Helene was greater in Georgia and the Carolinas than in Florida. Turning to prior year reserve development.
We had total net favorable development of $126,000,000 pretax. In Business Insurance, the annual asbestos review resulted in a charge of $242,000,000 Ex asbestos, business insurance had net favorable PYD of $151,000,000 driven by favorability in workers' comp. In Bond and Specialty, net favorable PYD of $36,000,000 was driven by another quarter of better than expected results in Fidelity and Surety. Personal Insurance had $181,000,000 of net favorable PYD with favorability in both home and auto. After tax net investment income of $742,000,000 was up 16% from the prior year quarter.
Fixed maturity NII 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. Returns in the non fixed income portfolio were also above the prior year quarter. In terms of our outlook for fixed income NII, including earnings from short term securities, we now expect approximately $700,000,000 after tax for the Q4. For 2025, we expect approximately $2,900,000,000 after tax, our highest level ever, beginning with approximately $700,000,000 in the Q1 of 2025 and growing to approximately $760,000,000 for the Q4. Turning to capital management.
We generated our strongest ever level of quarterly operating cash flows at $3,900,000,000 bringing the year to date figure above $7,000,000,000 also our strongest ever September year to date results. Interest rates decreased during the quarter and as a result our net unrealized investment loss decreased from $4,000,000,000 after tax at June 30 to $2,100,000,000 after tax at September 30. Adjusted book value per share, which excludes net unrealized investment gains and losses, was $131.30@quarterend, up 7% from year end and up 13% from a year ago. We returned $496,000,000 of excess capital to our shareholders this quarter, comprising share repurchases of $253,000,000 and dividends of $243,000,000 We have approximately $5,300,000,000 of capacity remaining under the share repurchase authorization from our Board of Directors. While it obviously did not impact our 3rd quarter results, let me make a quick comment on Hurricane Milton.
It's still early days in terms of assessing our ultimate losses, but at this point, we have a preliminary range of between $75,000,000 $175,000,000 of pre tax losses, net of reinsurance. To sum things up, our Q3 and year to date results illustrate the fundamental earnings power that has resulted from our multiyear focus on growth at attractive margins and our rock solid balance sheet. In addition to best ever levels of net written premium and net earned premium, our diversified portfolio of businesses delivered a terrific underwriting result, thanks to our best ever underlying combined ratio, clearly demonstrating that we are positioned for success even during periods of weather volatility like we and the industry have experienced. In fact, despite having absorbed the highest ever level of catastrophe losses for the 1st 9 months of the year, our September year to date core earnings per share of $12.43 is a record high. And with that, I'll turn the call over to Greg for a discussion of Business Insurance.
Greg Tyslowski, President of Business Insurance, Travelers: Thanks, Dan. Business Insurance had another strong quarter in terms of both top and bottom line results. Segment income for the Q3 was $698,000,000 up about 50% from the prior year quarter, driven by improved prior year development and higher underlying underwriting income. The combined ratio of 95.8% was strong and improved from the prior year quarter by more than 3 points. Similar to the past several quarters, we're extremely pleased with the quarter's exceptionally strong underlying combined ratio of 87.9%, which improved by about 2 points from the prior year quarter, primarily reflecting the benefit of earned pricing.
This was our best third quarter underlying result ever. Turning to the top line. We grew net written premiums by 9% to an all time third quarter high of more than $5,500,000,000 Renewal premium change was once again historically high at 10.5%, with renewal rate change that increased nearly a point sequentially to 7.3%, driving the majority of the strong pricing. Retention remained excellent at 86% and new business of $680,000,000 was the 2nd highest third quarter result ever, just slightly trailing last year's record Q3. In terms of pricing, we're pleased to sustain strong levels of renewal premium change, which increased sequentially from the 2nd quarter.
Strong pricing was broad based with renewal premium change atorclosetodouble digits in every line other than workers' comp. 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. Umbrella and auto continue to lead the way with rate increases well into double digits. In terms of sequential renewal rate change, every line was at or higher than the 2nd quarter. Even with these strong pricing levels, retention remains strong as I mentioned earlier, a reflection of marketplace discipline in the face of industry headwinds.
As for the individual businesses, in select renewal premium change remains strong at 12.3%, up almost 2.5 points from the Q3 of last year. Renewal rate change of 5.5% was up sequentially from the 2nd quarter and up more than 2.5 points from last year's Q3. Retention ticked down as we continued to intentionally optimize our CMT risk return profile in a couple of targeted geographies. New business was healthy and near historical highs. Overall, we remain pleased with the granular pricing and underwriting execution driving profitable growth in Select.
In middle market, renewal premium change was exceptionally strong at 10.6%, about a point higher than the 2nd quarter driven by renewal rate change which reached 8%. The rate increases were broad based with more than 3 quarters of our middle market accounts achieving positive rate change. And at the same time, the granular execution was excellent with meaningful spread from our best performing accounts to our lower performing accounts. We're pleased that retention also remained exceptionally even with these levels of price increases. Lastly, new business of $364,000,000 was our highest ever 3rd quarter result and we're pleased with the risk selection and the strength of pricing on the accounts that we added to the portfolio.
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 Klein, President of Bond and Specialty Insurance, Travelers: Thanks, Greg. Bond and Specialty posted another strong quarter on both the top and bottom lines. We generated segment income of $222,000,000 and an excellent combined ratio of 82.5%. We also delivered a very strong 85.6% underlying combined ratio in the quarter. The increase of 4.9 points from last year's quarter reflects a modestly elevated expense ratio primarily related to the Corbus acquisition and the impact of earned pricing.
We expect the expense ratio to remain elevated for a few more quarters as we integrate Corbus' operation and as we ramp up and earn in premiums from its attractive book of business. Turning to the top line, we grew net written premiums by 7% in the quarter to a record high $1,100,000,000
Michael Klein, President of Personal Insurance, Travelers: In our
Jeff Klein, President of Bond and Specialty Insurance, Travelers: high quality domestic management liability business, we again delivered excellent retention of 90% with positive renewal premium change that reflects terrific execution by our field organization and our focus on retaining our profitable book of business. We're pleased that we grew new business by over 80% from the prior year quarter to a record $113,000,000 driven by Corbus. 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. We're deploying Corbus' proprietary underwriting and risk control capabilities across our cyber book, helping our customers remediate vulnerabilities and avoid cyber losses. Our distribution partners have endorsed our go to market strategy, which includes both admitted and excess and surplus lines cyber offerings.
And realizing the benefit of our high quality Travelers paper and brand, we've considerably improved Corbus's legacy renewal retention. In short, we couldn't be more pleased with the addition of the Corbus team to the Travelers family. Turning to our market leading surety business. We grew net written premiums by 7% from a very strong level in the prior year quarter. This growth reflects a robust construction environment, continued strong demand for our surety products and services and outstanding execution by our team in growing our high credit quality portfolio.
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, President of Personal Insurance, Travelers: Thanks, Jeff, and good morning, everyone. In Personal Insurance, we are very pleased with our 3rd quarter results, which continued to reflect the positive impact of our rate and non rate actions across the portfolio. In the quarter, we delivered significantly improved segment income of $384,000,000 and a combined ratio of 92.5 percent, driven by excellent underlying by an excellent underlying underwriting result and strong net favorable prior year reserve development. The underlying combined ratio of 82.7% reflects an 11.5. Improvement compared to the prior year quarter, primarily driven by the benefit of earned pricing in both auto and home as well as favorable non catastrophe weather.
Continued strong price increases drove 7% growth in net written premiums as we continue our focus on improving profitability in property while seeking profitable growth in auto. In auto, we're pleased with another quarter of improved profitability. The 3rd quarter combined ratio was very strong at 93.4 percent despite 4.9 points of catastrophe losses primarily related to Hurricane Helene. The underlying combined ratio of 91.2% improved 9.4 points compared to the prior year quarter. The improvement continues to be driven by the benefit of higher earned pricing and lower losses from physical damage coverages.
This quarter's underlying underwriting this quarter's underlying result also included a 2 point benefit related to the re estimation of prior quarters in the current year. Taking a step back, the year to date underlying combined ratio of 93.7% reflects considerable progress and is compelling evidence of our return to profitability in auto. Looking ahead to the Q4 of 2024, it is important to remember that the Q4 auto underlying loss ratio has historically been about 6 to 7 points above the average for the 1st 3 quarters because of winter weather and holiday driving. In homeowners and other, the 3rd 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 and higher favorable prior year development. Hurricane Helene and a severe convective storm in July drove catastrophe losses in the quarter.
The underlying combined ratio of 74.4 percent improved 13.6 points compared to the prior year quarter. Approximately 3 quarters of the year over year favorability was related to non catastrophe weather and non weather losses. The benefit of earned pricing also contributed to the improvement. Turning to production, our results reflect our ongoing efforts to balance profitability and growth across the portfolio. We're pleased with our progress as we execute a very granular state by state strategy.
In domestic auto, retention of 83% remains strong. Renewal premium change of 12.8% continued to moderate as intended. Renewal premium change will continue to decline reflective of improved auto profitability. Auto new business premiums continue to reflect our success in achieving positive auto growth in many states. 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 cross line impact of our actions to manage property exposure in high risk cat geographies.
We're comfortable with this trade off in the near term and remain confident in our ability to profitably grow our portfolio over time. In homeowners and other retention of 85% and renewal premium change of 14.6% remains strong and consistent with recent quarters. We expect renewal premium change to generally remain at this level in the Q4. As we intended, homeowners new business premium and policies in force continued to decline compared to the prior year quarter. Also as we intended, the decline was most significant in high risk catastrophe geographies, reflecting continued actions to reduce exposure and mitigate volatility through improved risk selection, restricted binding authority, tightened eligibility requirements and higher deductibles.
To 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. Now I'll turn the call back over to Abi.
Abby Goldstein, Senior Vice President of Investor Relations, Travelers: Thanks, Michael. We're happy to open up for your questions.
Conference Operator: Thank you. We will now begin the question and answer Your first question comes from the line of Gregory Peters from Raymond (NSE:RYMD) James. Your line is open.
Gregory Peters, Analyst, Raymond James: Okay. Good morning, everyone. So I guess for the first question, I'll focus on domestic business insurance and the renewal premium change, which continues to be quite strong even through the Q3. I guess where I'm going with this is given the strong improvement in the underlying results, at what point will that renewal premium change begin to moderate?
Alan Schnitzer, Chairman and CEO, Travelers: Greg, good morning. It's Alan. Thanks for the question. We're not going to try to forecast what that's going to be. But I would say there are headwinds out there in terms of inflation.
There's uncertainty out there in terms of the political and regulatory environment, the geopolitical environment, so on and so forth. So I'll share that with you as the kind of things we think the market is reacting to, but we're not going to project it.
Gregory Peters, Analyst, Raymond James: Okay, fair enough. I thought I'd give it a shot. I guess the other question, listening to the comments about the strong results, the best third quarter ever in business insurance, etcetera, and the free cash flow. I guess, I want to pivot back to capital management. I know you're not going to disclose M and A on the call, but it seems like a balanced approach, including capital return to shareholders and M and A or investment in organic is a high likelihood that it could happen.
But considering the cash flow numbers, should we just plow that all in the share repurchase? Or what are you thinking?
Alan Schnitzer, Chairman and CEO, Travelers: Yes. Greg, I'll just tell you philosophically, for every single dollar of capital that we generate, our first priority is to invest it back in the business in whatever way we can do that to create shareholder value, whether that's organic growth, investing in talent or capabilities, products, etcetera, or whether it's inorganic. So that's our first objective, and we try to do that. But it's not our capital, it's investor capital and we try to be very, very good stewards of shareholders' 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.
Gregory Peters, Analyst, Raymond James: Okay. Congrats on the results.
Alan Schnitzer, Chairman and CEO, Travelers: Thanks, Greg.
Conference Operator: Your next question comes from the line of David Motomatter from Evercore ISI. Your line is open.
David Motomatter, Analyst, Evercore ISI: Thanks. Good
Analyst: morning. I sort of had a follow-up on the prior question on the BI renewal rate change. So it's good to see the acceleration quarter over quarter after it's decelerated the past 3 quarters. I guess I'm just wondering, Alan, if you could comment 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 has kind of been a standout, a drag on that RRC recently.
And then just relatedly, how that impacts your appetite for growth within property, but also in liability lines where it's still an uncertain environment?
Alan Schnitzer, Chairman and CEO, Travelers: Yes. So there's a lot there. David, let me start. And if I don't get to it, I'll follow-up. But in terms of pricing, I would say that we expect renewal price change continue to be positive and strong for all the reasons I shared in response to Greg's question.
Now 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 your comment about property and that price weighing. I guess I would say you got to take that property pricing together in connection with returns in the property line. So it's not like 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 all just have to wait and see where the market goes on that. But clearly, these storms are a reminder of the potential volatility and the things that we've all got to be thoughtful about in committing capital to risk. Did I get that David?
Anything I missed?
Analyst: And then just on the it sounds like the liability lines in auto and umbrella, rates. It sounded like they accelerated a bit sequentially in the quarter. And just wondering, I guess, you guys have made the reserve changes last quarter. It didn't sound like there was any noise this quarter from post that. But just your comfort level in terms of leaning into growth in some of those lines?
Alan Schnitzer, Chairman and CEO, Travelers: Yes. So 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. And we remain comfortable with the returns. And again, we're going to execute on a very granular account by account basis. But given where the returns are, given we've shared before and we talked a lot about this last quarter, there's a real advantage to reacting quickly to loss cost trends and getting your view of pricing in order.
And that gives us real confidence with the way we're executing in the marketplace today. So we do think in terms of both growth and profitability, there is a huge advantage to reacting quickly to loss trend.
Analyst: Great. Thank you. Thanks, David.
Conference Operator: Your next question comes from the line of Mike Zaremski from BMO. Your line is open.
Abby Goldstein, Senior Vice President of Investor Relations, Travelers0: Hey, thanks. Good morning. It might be an easy answer, but I don't think I heard any call out of maybe one time items helping the underlying business insurance, the underlying loss ratio.
Dan Frey, Chief Financial Officer, Travelers: Mike, it's Dan. That's right. It's pretty clean, pretty straightforward quarter. And really, we wouldn't call out anything that you need to adjust for.
Michael Klein, President of Personal Insurance, Travelers: Okay. Got it.
Abby Goldstein, Senior Vice President of Investor Relations, Travelers0: Okay. For my follow-up, so I guess my follow-up would be on personal lines. You have said in your prepared remarks that you are, I think, making some changes to deductibles, I believe. I guess from a some of the super regionals are talking about kind of trying to overhaul their roofing basically the deductibles in a major way, increasing deductibles and maybe roof depreciation schedules or just a higher percentage deductible for roof replacement. Are you is Travelers taking more of a slower approach to that?
Or are you making any kind of meaningful changes to your terms and conditions and personal lines in certain geographies?
Michael Klein, President of Personal Insurance, Travelers: Sure, Mike. It's Michael. I would say, yes, we're very active in making meaningful changes to our terms and conditions for property, particularly in cat exposed geographies. It's really what I was referring to when I talked about what one of the drivers of the shrink in property is. And specifically to your question about deductibles, we have moved in some states we have deductibles that are dollar denominated.
In other states we have deductibles that are percentage. But we've made significant moves, particularly in cat exposed states in the Midwest along those lines. Again, among the other things I mentioned, which are restricting eligibility, doing quite a bit of re underwriting of the portfolio to really try to manage that exposure.
Abby Goldstein, Senior Vice President of Investor Relations, Travelers0: Okay. And I guess that would maybe change the way we need to think about modeling, maybe the loss ratio versus the cat ratio, but I guess I'll follow-up offline. Thank you.
Analyst: Thank you.
Conference Operator: Your next question comes from the line of Rob Cox from Goldman Sachs. Your line is open.
David Motomatter, Analyst, Evercore ISI: Hey, thanks for taking my question. So obviously on the renewal premium change, great numbers overall. I did just want to ask on Select. It looks like there was a little pressure on a little bit lower new business growth and retention if I look back relative to a few quarters ago. I just want to ask on that.
Greg Tyslowski, President of Business Insurance, Travelers: Good morning, Rob. This is Greg. Yes, as I shared with you in my comments, we're constantly optimizing 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 retention number throughout that period. And we are 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 in small commercial has also been fine tuning that particular apparel and the coverage associated with that. And that's why we saw a little bit of the tick down in retention. I called that out in my prepared comments for you.
David Motomatter, Analyst, Evercore ISI: Got it. Thank you. And then, I just wanted to ask, as a follow-up on just thinking 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 in thinking about how we could size your annual expected catastrophe load. Any color or thoughts you could provide would be helpful.
Alan Schnitzer, Chairman and CEO, Travelers: Yes. Rob, good morning. It's Alan. 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. And one thing we've shared is we've had a couple of years now of pretty heavy cat losses is that 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 about cat loads going forward. We haven't yet given an outlook for cats.
Analyst: Thank you.
Conference Operator: Your next question comes from the line of Elyse Greenspan from Wells Fargo (NYSE:WFC). Your line is open.
Abby Goldstein, Senior Vice President of Investor Relations, Travelers1: 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 reserving action was taken within GL in the quarter? You didn't call it out. So it sounds like there was nothing, but I want to confirm that.
Dan Frey, Chief Financial Officer, Travelers: Yes, Elyse, it's Dan. So I'll reiterate what I said, which was so ex asbestos and BI, we were favorable about 151. 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.
Abby Goldstein, Senior Vice President of Investor Relations, Travelers1: Thank you. And then my follow-up, my second question is on personal auto. When you guys the $93.70 year to date and recognizing, like, there is some seasonality in the Q4, but this puts you guys right at a good spot relative to kind of mid-90s, which is kind of what folks typically target on the auto side. So is this like the sustainable run rate margin as we think about the business with rates slowing and just your view of overall loss trend within Personal Auto?
Michael Klein, President of Personal Insurance, Travelers: Sure, Elyse. It's Michael. I would say certainly the year to date result points you to a view that across the book were rate adequate. We're very pleased with the results and the returns. 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 broadly speaking, again, pleased with and really rate adequate across the book in auto at this point.
Abby Goldstein, Senior Vice President of Investor Relations, Travelers1: Thank you.
Conference Operator: Your next question comes from the line of Brian Meredith (NYSE:MDP) from UBS. Your line is open.
Abby Goldstein, Senior Vice President of Investor Relations, Travelers2: Yes, thanks. I could just follow-up on that one. If you're rate adequate across your book, should we start to expect that policy accounts going to grow here in the near future?
Michael Klein, President of Personal Insurance, Travelers: Great question, Brian. It's Michael. We are hard at it, right? I tried 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, and we're making progress. But obviously, we're subject to those rates getting filed and approved before those flip into that category. But again, we're hard at work on that. And then the other element is the cross line impact of our work to improve property risk reward.
That will take some more time, but again, we're making strong progress there. And so again, as I've said the last couple of quarters, our focus in auto is to profitably grow it. 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.
Abby Goldstein, Senior Vice President of Investor Relations, Travelers2: Appreciate it. Thank you. And then one for Greg, I'm just curious, any kind of insight into what workers' comp pricing 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?
Greg Tyslowski, President of Business Insurance, Travelers: Yes, Brian, this is Greg. Yes, 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 certainly as leaders in that line have demonstrated that. And so when you look at the bureaus NCCI being the largest one, what we're looking at for a forecast in 2025 for a loss cost recommendation, it's very similar to what we saw in 2024. Of course, that doesn't apply to every individual account.
We'll have e mods and etcetera on the individual account, but I think it's going to kind of stay with the levels that it's at right now.
Abby Goldstein, Senior Vice President of Investor Relations, Travelers2: Thanks. Appreciate it.
Conference Operator: Your next question comes from the line of Josh Shanker from Bank of America. Your line is open.
Abby Goldstein, Senior Vice President of Investor Relations, Travelers3: Yes, more questions for Michael. He's very popular today. I wanted to talk a little bit about first the favorable development in the personal lines segment. What years were it throwing off the favorable development? And does that mean to some extent you may have overreacted on states?
Hey, Josh,
Michael Klein, President of Personal Insurance, Travelers: it's Dan. So I'll start with the PYD story. Part of the PYD
Dan Frey, Chief Financial Officer, Travelers: story, remember, the end of 2023 was really favorable in personal insurance. And it was also brand new. The Q4 was terrifically strong from a profit perspective. It wasn't fully developed. We posted a really good number in the Q4 last year, but we were allowing for the uncertainty that were some of those claims going to come later, were some of the ones that did come going to come with more severity, 9 months further on we're just more confident.
But if I look at the spread of accident years in personal insurance favorable prior year reserve 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. And I'll leave the pricing question for Michael.
Michael Klein, President of Personal Insurance, Travelers: Yes. And Josh, I would say in terms of did we overreact on pricing, again, I would reiterate the comment I made in response to Elyse, which is as we look across the book, we're rate adequate. And I'd also point you to the combined ratio for the year to date. If you add back prior year development to try to get to an accident year type number, that number is 97.4%. So I don't think that would be an indication that we've overshot.
Abby Goldstein, Senior Vice President of Investor Relations, Travelers3: That makes sense. And so we've had 2 quarters now with about $170,000,000 $180,000,000 of prior year favorable development in the personal lines segment. A lot of times there's a certain trend and when that trend deviates, it throws off favorable development. But are these discrete things that you've noticed that make this degree of favorable development probably less likely to be sustainable if the trends continue? Or could we continue to see 100 of $1,000,000 of favorable development if the trends keep playing out?
I hope I'm asking the question appropriately.
Dan Frey, Chief Financial Officer, Travelers: Yes, Josh, it's Dan. I think I get it and I'm glad you asked it. I mean, I think if there's 2 words that I would not put in a sense together, it's prior year reserve development and trend or run rate. 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. What you've seen probably in the last couple of years when loss costs were elevated in 2022 and 2023, we said 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 reserves. 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. So I 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 NPI in the next several quarters, but that's the way
Abby Goldstein, Senior Vice President of Investor Relations, Travelers2: we think about
Michael Klein, President of Personal Insurance, Travelers: it. Thank you
Abby Goldstein, Senior Vice President of Investor Relations, Travelers3: for the answers. Appreciate it.
Michael Klein, President of Personal Insurance, Travelers: Thanks, Josh.
Conference Operator: And we have one more question. And that question comes from the line of Michael Phillips from Oppenheimer. Your line is open.
Abby Goldstein, Senior Vice President of Investor Relations, Travelers4: Thanks. Good morning, everybody. I'm going to go back to the BI casualty renewed price changes for a second. From another side, when you have gotten more rate today than last quarter, and then I hear your answers, Alan, about uncertainty and geopolitical risk and social and economic. We talked about stuff for years.
I guess, when you're getting more rate today than last quarter, with such strong current core margins, does it mean, Alan, that your concerns on those things that you answered are more today than they were last year or
Abby Goldstein, Senior Vice President of Investor Relations, Travelers3: the year before when you started talking about them?
Alan Schnitzer, Chairman and CEO, Travelers: Does it mean that we're more concerned about it? No, I
Michael Klein, President of Personal Insurance, Travelers: Yes. You're considering the answers that you gave.
Abby Goldstein, Senior Vice President of Investor Relations, Travelers2: Okay. Yes. Okay. That's the answer. That's the question.
Abby Goldstein, Senior Vice President of Investor Relations, Travelers4: Are you more concerned today than maybe you were last year?
Alan Schnitzer, Chairman and CEO, Travelers: I wouldn't say that we're more concerned today. You can't really think about this sort of static at a point in time. We're thinking about this looking out the windshield of the future and loss trend is certainly positive and we'd like pricing to keep up with that. But I would not say that we're more concerned today. And I do think one thing you get with Travelers is pretty early detection and reaction to changes in loss activity.
And so I don't know where it's going to go, but we feel pretty good about the actions that we've taken so far this year.
Abby Goldstein, Senior Vice President of Investor Relations, Travelers4: Okay. Thanks. A quick one maybe for Jeff perhaps. Any updates you can share with I guess loss trends in the management liability section?
Jeff Klein, President of Bond and Specialty Insurance, Travelers: Thanks. Not specific to loss trend, no. I called out in this script for you and again this is Jeff Klink. We said that the earned pricing had an unfavorable impact on the underlying combined ratio. I point out though that the pricing strategy is a function of rate adequacy.
The returns in the business have been excellent. Our renewal pricing reflects deliberate execution. I feel great about the renewal retention percentage at 90%. Thanks for the question.
Conference Operator: And that concludes our question and answer session. I will now turn the call back over to Abi Goldstein for some final closing remarks.
Abby Goldstein, Senior Vice President of Investor Relations, Travelers: Thank you. Thank you all for joining us this morning. Appreciate the questions. And as always, if there's any follow-up, please get in touch with Investor Relations. Have a good day.
Conference Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
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