Fourth Quarter 2024 Transcript

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This transcript is a textual representation of The Travelers Companies, Inc. (Travelers) conference call on January 22, 2025, at 9:00 a.m. EST and is provided by Travelers only for reference purposes. This transcript should be read with the accompanying webcast, related press release and financial supplement which are available on Travelers website www.travelers.com. While efforts are made to provide an accurate transcription, there may be inaccuracies or omissions in the attached transcript.

The information in this transcript is current only as of the date of the earnings conference call transcribed herein and may have subsequently changed materially. Travelers does not update the information in this transcript to reflect subsequent developments or to delete outdated information and assumes no duty to do so. For further information, please see Travelers reports filed with the SEC pursuant to the Securities Exchange Act of 1934 which are available at the SEC's website (www.sec.gov).

The Travelers Companies, Inc. January 22, 2025 at 9:00 a.m. Eastern

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Operator

Good morning, ladies, and gentlemen. Welcome to the fourth quarter results teleconference for Travelers.

We ask that you hold all questions until the completion of formal remarks, at which time you will be given instructions for the question-and-answer session. As a reminder, this conference is being recorded on January 22, 2025.

At this time, I would like to tuthe conference over to Ms. Abbe Goldstein, Senior Vice President of Investor Relations. Ms. Goldstein, you may begin.

Abbe Goldstein

Thank you. Good morning, and welcome to Travelers' discussion of our fourth 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 Investors section.

Speaking today will be Alan Schnitzer, Chairman and CEO; Dan Frey, Chief Financial Officer; and our three segment Presidents: Greg Toczydlowski of Business Insurance, Jeff Klenk of Bond & 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 tuthe 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 in 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. Also, in our remarks or responses to questions, we may mention some non-GAAP financial measures. Reconciliations are included in our recent earnings press release, financial supplement, and other materials available in the Investors section on our website.

And now I'd like to tuthe call over to Alan Schnitzer.

Alan Schnitzer

Thank you, Abbe. Good morning, everyone, and thank you for joining us today.

Before we begin, I want to take a moment to acknowledge the tragic wildfires that have devastated communities across Los Angeles. Our hearts go out to everyone affected. Those who've lost their homes, their businesses, and most tragically, their loved ones. At times like these, words alone are, of course, not enough. As a company rooted in the communities we serve, we will be there for our customers and neighbors to support them as they recover and rebuild. We've assessed impacted areas through aerial imagery and made live contact with the substantial majority of our customers with claims, enabling us to expedite claim payments.

In addition, our expert claim team is on the ground. We're grateful for their efforts. We also have mobile claim offices positioned in the area where customers can file a claim in person or receive an advance claim payment. And we look forward to working with policymakers in California, to make sure the state has a resilient insurance market going forward.

The Travelers Companies, Inc. January 22, 2025 at 9:00 a.m. Eastern

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Now let me tuto our fourth quarter and full year 2024 results. We're very pleased to report that for the full year, core income was up 64% to more than $5 billion or $21.58 per diluted share, generating core retuon equity of 17.2%. These results were driven by strong fundamentals, growth in earned premiums, excellent underwriting profitability and a higher level of net investment income. That combination makes for a powerful earnings engine and that momentum is at our backs as we enter 2025.

Turning to our fourth quarter results. We are very pleased to have generated exceptional top and bottom line results. Core income for the quarter of $2.1 billion was a record. Net earned premiums increased 9% to $10.9 billion, and the combined ratio improved 2.6 points to 83.2%. The improvement in the combined ratio was driven by very strong underlying profitability and higher net favorable prior year reserve development. The underwriting margins were strong in all three segments. The combined ratio in Business Insurance improved by more than a point to an excellent 85.2%. The combined ratio in our Bond & Specialty business was a very strong 82.7%, and the combined ratio in Personal Insurance improved than six points to an exceptional 80.7%. These terrific segment results led to a reported consolidated combined ratio that improved 2.6 points to 83.2%.

Turning to investments, after-tax net investment income for the full year was up 21%, $3 billion, driven by strong and reliable returns from our growing fixed income portfolio and higher returns from our non- fixed income portfolio. These results, together with our strong balance sheet, enabled us to grow adjusted book value per share by 13% during the year to $139.04. After making important investments in our business and returning more than $2 billion of excess capital to shareholders.

Turning to the top line, through continued terrific marketplace execution across all three segments, we grew net written premiums during the year by 8% to more than $43 billion and in the quarter by 7% to $10.7 billion. 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 in the quarter by 8% to $5.4 billion. Renewal premium change in the segment remained very strong at 9.6%, including renewal rate change of 6.9%. Retention also remained strong at 85%. A combination of strong pricing and excellent retention reflects our deliberate and granular execution in a generally disciplined marketplace.

In Bond & Specialty Insurance, we grew net written premiums by 7% to $1.1 billion, with excellent retention of 88% in our high-quality Management Liability business. In our market-leading Surety business, we grew net written premiums by 19%. We are very pleased to have generated terrific production results across our commercial segments, where margins continue to be attractive. That includes our E&S offerings, where we grew net written premiums by 13% in 2024.

In Personal Insurance, we grew net written premiums in the quarter by 7% to $4.3 billion. Driven by continued strong renewal premium change, particularly in our Homeowners business.

As we wrap up the year, I'd like to take a few minutes to reflect on our 2024 results and put them into an over-time context. As we've shared, we are and have been focusing our investments on three strategic innovation priorities.

First, extending our advantage in risk expertise. Second, providing great experiences for our customers, distribution partners and employees. And third, optimizing productivity and efficiency. These investments are designed in large part to position us to grow over time at leading returns. The successful execution of that strategy has been an important contributor to our strong results, providing

The Travelers Companies, Inc. January 22, 2025 at 9:00 a.m. Eastern

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us with the financial resources that enable us to continue investing at scale, which we believe will increasingly be a differentiator in this industry. It's a virtuous cycle.

The data on slide 19 of the webcast presentation illustrates the significant acceleration of our performance since we launched this strategy. We've grown our net written premiums over the past eight years by more than 70% to over $43 billion. At the same time, we've improved our underlying combined ratio by nearly seven points. High-quality growth with strong underwriting profitability is a noteworthy achievement in this industry. In lines of business with returns that meet our objectives, growth over time has generally come from a combination of price increases and growth in customers. In lines where the emphasis has been on improving returns, premium growth has been driven by higher pricing.

In addition, our growth has largely been organic from products in which we have deep expertise, to distribution partners with whom we have long-standing relationships and in geographies where we have a thorough understanding of the regulatory environment and other market dynamics. In other words, a relatively low-risk growth strategy. Through our focus on productivity and efficiency, we've also meaningfully improved our operating leverage over this time. We've allocated some of that benefit to investments in strategic priorities.

As you can see on slide 21, since 2017, we've more than doubled our investments in strategic technology initiatives. Over that same period, we've carefully managed growth in routine but necessary technology expenditures. In other words, over an eight-year period, we simultaneously and meaningfully increased our technology spend and improved the strategic mix of that spend. In 2017, our strategic investments represented about a third of our tech spend. In 2024, our strategic tech investment approached nearly half of our overall tech spend of more than $1.5 billion. At the same time, our efforts to improve operating leverage also enabled us to lower our expense ratio by more than three points or about 10%. The flexibility that operating leverage gives us to allocate the benefit between investment opportunities and the bottom line is a valuable competitive advantage.

Turning to underwriting. The tremendous strength and relative predictability of our underlying underwriting income has increasingly contributed to our bottom line. Our underlying underwriting income has more than tripled over the last eight years, reaching $4.5 billion after tax in 2024. This level of underlying underwriting income positions us to deliver strong income and returns, even with the level of outsized natural catastrophes we and the industry experienced in 2024.

Our growth in underwriting income also contributes to the increase in our cash flow from operations, which was $9.1 billion in 2024, our highest level ever and nearly $4 billion more than it was just five years ago. Our strong operating cash flow is important. It gives us the ability to make strategic investments in our business, retuexcess capital to shareholders and grow our investment portfolio. Our investment portfolio, which we grew almost $100 billion at year-end, positions us to continue generating a higher level of predictable and reliable net investment income.

In summary, we're capitalizing on the successful execution and effective strategy. Our strong results and financial position enable us to be there when our customers need us most, as our friends and neighbors in Los Angeles do right now. The significant momentum we have built gives us great confidence in our ability to continue serving our customers and distribution partners, while delivering for our shareholders. In other words, we remain very confident in the outlook for Travelers.

And with that, I'm pleased to tuthe call over to Dan.

The Travelers Companies, Inc. January 22, 2025 at 9:00 a.m. Eastern

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Dan Frey

Thank you, Alan.

Core income for the fourth quarter was $2.1 billion, and core retuon equity was 27.7%, bringing the full year core income to $5 billion and full year core ROE to 17.2%. We once again generated record levels of earned premium this quarter and we're very pleased with both the total combined ratio of 83.2% and the underlying combined ratio of 84%. The value of premium growth at strong underlying margins is evidenced by the quarter's underlying underwriting income of $1.4 billion after tax, bringing the year-to-date figure to $4.5 billion. That's our first time ever above $4 billion and an increase of nearly 40% from last year's then record level. The reported and underlying combined ratios for both the quarter and the full year were very strong in all three segments.

The expense ratio for the fourth quarter came in at 28.2%, once again reflecting the benefits of our focus on productivity and efficiency, coupled with strong top line growth. The full year expense ratio of 28.5% was in line with our expectations and our guidance throughout the year, even as the excellent loss ratio resulted in higher supplemental commission expense.

Looking ahead to 2025, we're comfortable with the annual expense ratio at this level for now, as the strength of the underlying loss ratio provides continued opportunity to make meaningful investments in both people and technology that we believe will broaden and deepen our competitive advantages well into the future.

Catastrophe losses in the fourth quarter were a modest $175 million pretax, including a net increase of a little more than $100 million related to re-estimation of prior quarter cats. Turning to prior year reserve development, we had total net favorable development of $262 million pretax, with all three segments contributing. In Business Insurance, net favorable PYD of $147 million was driven by favorability in Workers Comp that was partially offset by adverse development in abuse and molestation exposure and our runoff book. In Bond & Specialty, net favorable PYD of $45 million was driven by better-than-expected results in Fidelity and Surety. Personal Insurance had $70 million of net favorable PYD with favorability in both Auto and Home.

After-tax net investment income of $785 million was up 22% from the prior year quarter. Fixed maturity NII was again higher than the prior year quarter, reflecting both the benefit of higher yields and the significant growth in our portfolio of invested assets, which, as Alan mentioned, is approaching the $100 billion mark. Returns in the non-fixed income portfolio were also higher than in the prior year quarter.

In terms of our outlook for fixed income NII for 2025, including earnings from short-term securities, we expect approximately $3 billion after tax, beginning with $710 million in the first quarter and growing to $790 million in the fourth quarter.

Page 22 of the webcast presentation provides information about our January 1 Catastrophe Reinsurance Renewal. Our long-standing cat XoL treaty continues to provide coverage for both single cat events and the aggregation of losses from multiple cat events, and we have increased the amount of total coverage for 2025. The per occurrence loss deductible was unchanged at $100 million, and we've placed coverage for $3.7 billion of the $4 billion layer above the $4 billion attachment point. We're pleased to have added $150 million of coverage while reducing the total amount of ceded premium for this treaty.

Also, as part of our January 1 renewals, we enhanced our Casualty Reinsurance Program for 2025. Thanks to the reinsurance market's receptivity to our Casualty book, we were able to purchase more coverage at a lower attachment point on a roughly margin-neutral basis. I point this out to make you

The Travelers Companies, Inc. January 22, 2025 at 9:00 a.m. Eastern

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aware that the incremental ceded premium related to the additional coverage will impact the growth rate of consolidated net written premium for full year 2025 by a little less than 0.5 point. Because the written ceded premium impact all hits Business Insurance in the first quarter, the impact on net written premium growth in Q1 for the BI segment will be about four points, or about two points on a consolidated basis.

And while we're talking about the 2025 year on a financial modeling note, as you can see on slide 23 of the webcast presentation, our pre-tax catastrophe plan for 2025 is 6.9 combined ratio points. Slide 23 also provides a summary of the seasonality of our cat losses over the prior decade. As shown in the data, second quarter is regularly and noticeably been our largest cat quarter. We've provided this view of historical data in our year-end packages for a few years now, but we thought it might also be helpful to share our plan view for the coming year by quarter, so you'll find that here as well. Obviously, the 2025 plan figures were put together without knowledge of the January wildfires in California.

As you know, the California wildfires that began earlier this month are going to be a material event for the industry and will have a material impact on our first quarter earnings. Because the event is so recent and to some degree, still ongoing, we'd like to take more time to refine our analysis before providing an estimate. Also of interest for 2025, we continue to value our relationship with Fidelis and are pleased to have renewed the 20% quota share with them. The renewal includes the same loss ratio cap we had in place for both 2023 and 2024.

Turning to capital management, operating cash flows for the quarter of $2.1 billion were again very strong, and we ended the quarter with holding company liquidity of approximately $1.8 billion. For the full year, we generated our best-ever level of operating cash flow at $9.1 billion. Interest rates increased during the quarter, and as a result, our net unrealized investment loss increased from $2.1 billion after tax at September 30 to $3.6 billion after tax at year-end.

Adjusted book value per share, which excludes net unrealized investment gain losses, was $139.04 at year-end, up 13% from a year ago. We returned $494 million of capital to our shareholders this quarter, comprising share repurchases of $252 million and dividends of $242 million. We have approximately $5 billion of capacity remaining under the share repurchase authorization from our Board of Directors.

Recapping our results for 2024, core income was just over $5 billion and core ROE was 17.2%. We delivered our highest ever levels of written premium, underwriting income, net investment income, core income and cash flow from operations. In addition, we ended the year with our all-time high in adjusted book value per share and with our largest investment portfolio ever. In short, we're extremely well positioned for 2025 and beyond.

And with that, I'll tuthe call over to Greg for a discussion of Business Insurance.

Greg Toczydlowski

Thanks, Dan.

Business Insurance had another strong quarter, rounding out a terrific year in terms of financial results, execution in the marketplace, and progress on our strategic initiatives. Segment income for the quarter was nearly $1.2 billion, our highest quarter ever and up about 25% from the prior year quarter, which was our previous quarterly high. The improvement from the prior year was broad-based, driven by higher net investment income, higher underlying underwriting income and higher favorable prior year reserve development. The all-in combined ratio of 85.2% was a great result, and we're once again particularly pleased with our exceptional underlying combined ratio of 86.2%, an all-time quarterly best.

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The underlying loss ratio improved by more than 0.5 point from the prior year, driven by the benefit of earned pricing. The expense ratio remained excellent at 28.8%.

Turning to the top line, we grew net written premiums by 8% to an all-time fourth quarter high of more than $5.4 billion. Pricing remained strong with renewal premium change of 9.6%, driven by renewal rate change of 6.9%. Retention remained excellent at 85% and new business of $641 million was the second highest fourth quarter result ever, second only to last year's record fourth quarter.

We're pleased with these production results and our ability to sustain strong levels of pricing, reflecting the relative retuprofiles and environmental trends for each line. Renewal rate increases in Umbrella and Auto were both well into double digits and both up sequentially from the third quarter. Rate increases in CMP and GL remains strong and generally in line with third quarter levels, while the rate increases in Property were less than Q3.

More specifically on Property rate, the moderation continues to be driven by our National Property book, where returns are very strong after several years of compounding rate and improvements in terms and conditions. Across the book, even with the sustained strong pricing levels, retention remained excellent, as I mentioned earlier, reflecting our strong value proposition and the marketplace's acknowledgment of environmental trends and uncertainty.

As for the individual businesses, in Select, renewal premium change remained strong at 12%, up about a point from the fourth quarter of last year. Renewal rate change of 5.6% ticked up from the third quarter and was up more than 1.5 points from the prior year quarter. As we expected, retention moderated as we continue to intentionally optimize our CMP risk retuprofile 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. The mix we are achieving through these actions positions us for long-term success.

In Middle Market, renewal premium change was close to 10%, with renewal rate change of 7.8%, about flat with the third quarter and up about a point from the prior year quarter. The rate increases remain broad-based as we achieved positive rate change on almost 80% of our Middle Market accounts, and the execution was once again excellent with meaningful spread from our best-performing accounts to our lower-performing accounts. Lastly, new business of $357 million was our highest ever fourth quarter, and we're pleased with the risk selection and strength of pricing on the accounts we added to the portfolio.

As we close out 2024, let me provide a little color on full year results before turning the call over to Jeff. Segment income of more than $3.3 billion, the underlying combined ratio of 88.1% and top line of more than $22 billion were all record results. As for production, renewal premium change in retention both remained historically high while new business premiums reached an all-time best. These results are a direct reflection of our strong value proposition, as well as the successful execution of our thoughtful and deliberate strategies.

And while delivering these exceptional financial and production results, I'm also extremely pleased with our field execution and our broader team's dedication to delivering new tools, insights, and product enhancements. We have strengthened our competitive advantages in several key areas. Among other achievements, we have developed a more granular and predictive price to risk model, enhanced submission insights based on quality and appetite, leveraged more segmented and responsive loss analytics methodologies and integrated a customer relationship platform with our cutting-edge underwriting workstation. Our financial and operational performance this year was terrific, and our

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continued focus and investment in strategic capabilities positions us extremely well for long-term profitable growth. We're proud of these results and the best-in-class team that produce them.

With that, I'll tuthe call over to Jeff.

Jeff Klenk

Thanks, Greg.

Bond & Specialty ended the year with another strong quarter on both the top and bottom lines. We generated segment income of $228 million, an excellent combined ratio of 82.7% and a strong 86.8% underlying combined ratio in the quarter.

Turning to the top line, we're pleased that we grew net written premiums by 7% in the quarter. In our high-quality Domestic Management Liability business, we delivered very strong retention of 88%. We're pleased that Corvus transition from an MGA to writing on our high-quality paper drove higher retention relative to Corvus' historical experience. Management Liability renewal premium change was positive and improved a point from the third quarter, and new business were consistent with the very strong fourth quarter of 2023.

Turning to our market-leading Surety business, we grew net written premiums by an outstanding 19% from 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 & Specialty Insurance, capping off a year during which we delivered record levels of net written premiums in both our Surety and Management Liability businesses.

We're also pleased to have delivered excellent returns while making significant strategic investments in our business, including enhancing our cyber capabilities, upgrading our management liability technology platform, and optimizing segmentation and productivity through advanced analytics and AI.

And now I'll tuthe call over to Michael.

Michael Klein

Thanks, Jeff, and good morning, everyone.

I'm very pleased to share that Personal Insurance delivered segment income of $798 million and a combined ratio of 80.7% for the fourth quarter of 2024. Both results outpaced last year's strong fourth quarter results. For the full year, PI delivered record segment income of $1.25 billion and a combined ratio of 94.4%, reflecting substantial improvement in the fundamentals of our business.

Net written premiums grew 7% in the quarter and 8% for the year, bringing full year net written premium to a record of nearly $17.2 billion. In Automobile, the fourth quarter combined ratio was 94.2%. The underlying combined ratio of 96.3% improved 6.4 points compared to the prior year. This improvement was primarily driven by the benefit of higher earned pricing, lower losses resulting from favorable frequency across a number of coverages and sustained moderation in physical damage severity trends. This quarter's underlying results included a 1.5-point benefit from the favorable re-estimation of prior quarters in the current year.

For the full year 2024, the Auto combined ratio of 95% was a considerable improvement compared to the prior year, reflecting the success of our disciplined approach to execution. With another quarter of sustained profitability, we remain focused on growing the Auto book. In Homeowners & Other, the

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fourth quarter combined ratio of 67.8% improved three points compared to the prior year, as an improved underlying combined ratio was partially offset by the impact from higher catastrophes. The underlying combined ratio improved 4.3 points, primarily driven by favorable non-weather losses relative to the prior year, and the continued benefit of earned pricing. This quarter's underlying results included a 2.0 points benefit from the favorable re-estimation of prior quarters in the current year.

Stepping back, the 2024 full year Property combined ratio of 93.9% was a strong calendar year result. That said, we have more work to do to improve accident year profitability and consistently deliver target returns over time. Our production results reflect our continued focus on generating growth in Auto while improving profitability in Property through the execution of a granular state-by-state strategy.

In Domestic Automobile, retention remained consistent, while renewal premium change of 10.2% continued to moderate as intended, reflective of Auto profitability. We're pleased to note that Auto new business premium increased relative to the prior year quarter, driven by growth in new policies and new business premiums in states that are not constrained by our Property actions.

In Domestic Homeowners & Other, retention rose slightly to 86% and renewal premium change of 14.1% remained strong and consistent with recent quarters. In 2025, we expect renewal premium change to increase to the high teens as we continue to see rate increases and further increase insured values to ensure they remain aligned with replacement costs. The slight decline in Homeowners policies in force continues to reflect our deliberate efforts to improve profitability and thoughtfully deploy our Property capacity.

To recap, in 2024, we delivered record net written premiums and segment income. The substantial year-over-year improvement reflects the success of the significant actions we've taken to improve the fundamentals of the business, as well as the moderation of underlying loss trends. At the same time, we continue to invest in and deliver capabilities that will support the profitable growth of our business. Examples include the re-platforming of our Specialty products, continued advancement of our IntelliDrive telematics offering, further evolution of our AI-enabled aerial imagery capabilities and modernization of our infrastructure.

I couldn't be more proud of our team or more grateful to our distribution partners for their hard work and dedication in the face of an environment that continues to test and challenge us and our industry. In particular, I'd like to recognize our claim team who, as we speak, are on the ground in California, supporting our customers in their time of need.

With that, I'll tuthe call back over to Abbe.

Abbe Goldstein

Thanks, Michael. We are ready to open up for questions now.

Operator

Thank you.

We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. We ask that you limit yourself to one question and one follow up to allow everyone an opportunity to ask a question.

We'll go first to Robert Cox at Goldman Sachs.

The Travelers Companies, Inc. January 22, 2025 at 9:00 a.m. Eastern