Transcript
Third Quarter 2023 Results Teleconference
CORPORATE PARTICIPANTS
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This transcript is a textual representation of
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 Travelers does not update the information in this transcript to reflect subsequent developments or to delete outdated information and assumes no duty to do so.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
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Operator
Good morning, ladies and gentlemen. Welcome to the third quarter results teleconference for Travelers. We ask that you hold all questions until the completion of formal remarks, at which time you will be given instructions for the question-and-answer session. As a reminder, this conference is being recorded on
Thank you. Good morning, and welcome to Travelers' discussion of our third quarter 2023 results. We released our press release, financial statement - supplement, sorry, 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
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 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 under forward-looking statements in our earnings press release and in our most recent 10-Q and 10-K filed with the
And now I'd like to tuthe call over to
Thank you, Abbe. Good morning everyone, and thank you for joining us today.
Core income of
The unfavorable prior year reserve development was driven by the results of our annual asbestos review in our runoff book. The reserves in the ongoing businesses of all three segments developed favorably. We are very pleased with the underlying fundamentals of our business. Underlying underwriting income of
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Looking at the two commercial segments together, the aggregate BI/BSI underlying combined ratio was 88.3% for the quarter, among our best ever.
In our
Turning to investments, our high-quality investment portfolio continued to perform extremely well, generating after-tax net investment income of
In terms of production, thanks to great execution by our colleagues in the field and the strong franchise value they have to sell, we grew net written premiums by
For the segment, even with higher pricing at record levels, retention remained very strong at 87%, a reflection of a rational market. New business was strong and higher broadly across the segment.
In
In
With the end of the year in sight and 2024 on the horizon and coming into focus, we feel very well positioned for what's ahead and quite confident. In our
In terms of the top line of
As a result of strong pricing in recent years and higher fixed income NII, returns in the segment are currently attractive. Nonetheless, given the uncertainty generally in terms of weather volatility, economic and social inflation, the hardening reinsurance market and the geopolitical landscape, we plan to continue pursuing strong price increases in both the property and casualty lines to achieve our overtime retuobjectives.
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Turning to our industry-leading Bond & Specialty business, we just reached a milestone
In terms of the investment portfolio, with interest rates at their highest levels in recent memory and most indications suggesting higher for longer, we are extremely well positioned. In the last five years, we've grown our very high-quality investment portfolio by nearly
As we look ahead to 2024, we expect our after-tax fixed income NII will be more than
Lastly, I'll share that we're recently back from one of the year's largest industry conferences where we met with many of our distribution partners. We left confident that we have the pole position with distribution in
To sum it up, we remain very confident in the outlook for our business. I couldn't be more grateful to my 30,000 colleagues who show up every day committed to our culture, to our standard of excellence and to fulfilling our mission of creating shareholder value and our purpose of taking care of the people we're privileged to serve.
And with that, I'm pleased to tuthe call over to Dan.
Thank you, Alan.
Core income for the third quarter was
This combination of growth and underlying margin improvement led to a very strong underlying underwriting gain of
Our third quarter results include
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Turning to prior year reserve development, we had total net unfavorable development of
Outside of runoff in our ongoing businesses,
After-tax net investment income of
For 2024, we now expect more than
Turning to capital management, operating cash flows for the quarter of more than
As we've discussed previously, the changes in unrealized investment gains and losses generally did not impact how we manage our investment portfolio. We generally hold fixed income investments to maturity. The quality of our fixed income portfolio remains very high and changes in unrealized gains and losses have little impact on our cash flows, statutory surplus or regulatory capital requirements.
Adjusted book value per share, which excludes net unrealized investment gains and losses, was
Similar to my comments on last quarter's call, a significant level of catastrophe losses we've experienced this year resulted in lower year-to-date earnings than we expected, so share repurchases in the fourth quarter will likely be lower than the quarterly share repurchases made in the first half of the year.
To sum things up, while our third quarter earnings were adversely impacted by elevated catastrophe losses, we're pleased to post another quarter of double-digit premium growth, an improved and very strong underlying combined ratio and further improvement in our outlook for fixed income NII, all of which bodes well for our business results going forward.
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With that, I'll tuthe call over to Greg for a discussion of
Thanks, Dan.
Segment income for the third quarter was
The benefit of earned pricing was offset by normal variability in loss activity, all in netting to an excellent result. Net written premiums increased 16% to a record third quarter of
And given our high-quality book as well as several years of meaningful price increases and improvements in terms and conditions, we're very pleased to continue to produce historically strong retention levels.
Lastly, we're encouraged that new business was higher than the prior year quarter broadly across the segment. While the comparison of new business to the prior year quarter benefited from a relatively modest prior year result as well as higher pricing on new business this year, we're also pleased with the impact that our strategic investments are having on our production results.
As for the individual businesses, in Select, renewal premium change remained strong at 10.3%, while retention of 85% was up two points from the prior year quarter. New business was up
In Middle Market, renewal premium change remained very strong at 10.6%, while retention remained excellent at 89%. New business was a strong
To sum up,
With that, I'll tuthe call over to Jeff.
Thanks, Greg.
Bond & Specialty posted terrific top- and bottom-line results for the quarter. Segment income was a record
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Turning to the top line, we're pleased to have delivered record net written premiums of over
Record Surety net written premiums reflect strong broad-based demand for surety bonds and higher premium from large construction projects. So we're pleased to have once again delivered terrific top- and bottom-line results this quarter, driven by our continued underwriting and risk management diligence, excellent execution by our field organization and the benefits from our value-added approach and market- leading competitive advantages.
And now I'll tuthe call over to Michael.
Thanks Jeff, and good morning, everyone.
In
On a more positive note, the underlying combined ratio of 94.2% improved 5.1 points compared to the prior year quarter, reflecting an improvement in both Automobile and Homeowners. Net written premiums for the quarter grew 14%, driven by high teens renewal premium change in both Domestic Automobile and Homeowners & Other.
In Automobile, the third quarter combined ratio was 103.5%. This was 8.7 points lower than the prior year quarter, which included catastrophe losses resulting from Hurricane Ian. The underlying combined ratio of 100.6% and improved 3.3 points compared to the prior year quarter, driven by the impact of earned pricing in excess of loss trend.
The quarter-over-quarter improvement in our results clearly reflects the growing impact of our pricing and non-rate actions. Underlying results in Auto are headed in the right direction as the benefit of earned pricing continues to accelerate and as vehicle repair and replacement trends are moderating.
Looking ahead to the fourth quarter of 2023, it's important to remember that the fourth quarter Auto underlying loss ratio has historically been six to seven points above the average for the first three quarters because of winter weather and holiday driving.
In Homeowners & Other, the third quarter combined ratio of 116.2% increased 13.9 points due to the catastrophe losses that I mentioned earlier. The underlying combined ratio of 88% improved 6.9 points, primarily due to the impact of earned pricing, a benefit from the favorable re-estimation of prior quarters in the current year and a lower expense ratio.
Turning to production, our results continue to demonstrate our disciplined market execution in a challenging marketplace. Beginning with Domestic Homeowners & Other, renewal premium change of 19.4% was very strong. The lack of growth in policies in force reflects our continued actions to further balance rate adequacy, catastrophe risk and regulatory risk.
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We expect renewal premium change in Homeowners to remain consistent through year-end. Looking ahead to 2024, we expect renewal premium change to remain elevated, but moderate into low double- digits as our automatic increase in limit factors returned to more normal levels in line with stabilizing industry estimates of replacement costs.
In Domestic Automobile, renewal premium change of 18.2% increased two points compared to the second quarter of 2023. Auto policies in force declined slightly, reflecting our continued efforts to manage growth while improving profitability. Going forward, we expect renewal premium change in auto to remain very strong but begin to move down from here as more of the book reaches rate adequacy on a written basis.
I'm proud of the way our team continues to respond to the dynamic environment. We are consistently evolving pricing, segmentation, underwriting and terms and conditions, while managing new business flow to ensure we deploy capacity thoughtfully in the face of market dislocation. At the same time, we're sustaining our investments and capabilities to build our business for the future. With our leading talent, capabilities and strong distribution relationships, we are confident in our ability to generate leading returns over time.
Now I'll tuthe call back over to Abbe.
Thanks, Michael. And operator, we're ready to start questions.
Operator
If you would like to ask a question, please press star, followed by the number one on your telephone keypad, and we ask that you limit to one question and one follow-up. Your first question comes from the line of
Well, good morning, everyone. I guess my first question will focus on
I guess what I'm - where I'm going with this is what is your longer-term target with your UCR, especially in light of what we're seeing in the accelerating renewal rate trend? And - maybe if you don't want to answer it that way, maybe you can triangulate for us just how the renewal rate change, which is accelerating, matches up with your inflation expectations and your insurance to value initiatives?
A lot in that question, Greg. Good morning, it's Alan, there's a lot in that question. I think you're right for starters. I don't think we're going to give you our targets or objectives. I think it gets too close to something that's' competitively sensitive in terms of our pricing strategies. But I guess I'd point you toward where renewal premium change is, which is at record levels.
And frankly, I always hate to get into the commentary on loss trend because as I've shared before, to take a single metric to define what's going on across billions of dollars of premium implies a level of precision that doesn't exist. Every line has got its own dynamics, so on and so forth. But there wasn't a lot of change in sort of the profile of loss activity this past quarter. So we continue to have a pretty meaningful gap between where renewal premium changes and where loss trends are. And so I think that gives you a sense. It's why we are - it's easy enough in my prepared remarks to share that written margins are expanding.
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Right.
Operator
Your next question comes from the line of
Hi, good morning. Just a follow-up question on the BI underlying loss ratio. Greg, you had said that the benefit of earned pricing was offset by normal variability in loss activity. I was wondering if you could just size those components, and it sounded like non-cat weather was maybe a little bit elevated relative to normal expectations, but wondering if you could just break that down for us.
David, it's Dan. I think we're not going to go any further. I think what Greg said is really the way to think about it, which is, as Alan just mentioned, we've been getting a good level of written price increase, that's earning its way through. So there is still definitely a benefit from earned pricing.
In any given quarter, you got a handful of things that are going to go one way or the other that could be small weather, that could be base year, it could be mix changes, it could be just variability from one quarter to next. There were some good guys and some bad guys, nothing particularly significant and net result just about offset the benefit from earned price. And again, all inside of an underlying combined ratio that we're really happy with it sub-90%.
Operator
Your next question comes from the line of
Hi, thanks, good morning. I was hoping to get more color on the reserve development that you guys called out in your ongoing businesses within
Yes, Elyse, it's Dan. So sorry, I'll disappoint you there, we're not going to do the line by line. But Comp has been pretty strongly favorable, it was pretty strongly favorable again this quarter. In our remarks, we try to call out the lines that had noteworthy movement. This quarter, Commercial Auto did have some noteworthy movement. It wasn't dramatic, particularly in the scope of - you think about the size of the reserves for the Commercial Auto book.
And what we saw in Commercial Auto this quarter is a little bit of a lengthening of the development patterns, not a terrifically new theme, but every quarter, we're looking at all the data that comes in. This gave us an indication that maybe reserves should be carried a little higher than we were, and we're just trying to react to that in real time as quickly as possible. Those were - there were some movements in the other lines, some good guys and some bad guys, nothing particularly noteworthy, but those were the two main drivers.
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