The Travelers Companies, Inc. (NYSE:TRV) Q1 2024 Earnings Call Transcript

The Travelers Companies, Inc. (NYSE:TRV) Q1 2024 Earnings Call Transcript April 17, 2024

The Travelers Companies, Inc. beats earnings expectations. Reported EPS is $4.84, expectations were $4.71. TRV isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, ladies and gentlemen. Welcome to the First 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 April 17, 2024. At this time, I would like to turn the conference over to Ms. Abbe Goldstein, Senior Vice President of Investor Relations. Ms. Goldstein, you may begin.

Abbe Goldstein: Thank you. Good morning, and welcome to Travelers discussion of our first 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 turn the call over to Alan, I’d like to draw your attention to the explanatory note included at the end of the webcast presentation. Our presentation today includes forward-looking statements. The company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are described under forward-looking statements in our earnings press release and in our most recent 10-Q and 10-K filed with the SEC. We do not undertake any obligation to update forward-looking statements. 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 turn the call over to Alan Schnitzer.

Alan Schnitzer: Thank you, Abbe. Good morning everyone, and thank you for joining us today. We are very pleased to report excellent top and bottom line results for the quarter. Core income was $1.1 billion or $4.69 per diluted share, generating core return on equity of 15.4%. After-tax core income increased by $126 million, despite a $211 million one-time tax benefit in the prior year quarter. On a pre-tax basis, this year’s core income was $413 million or 45% higher year-over-year. Strong core income is driven by record net earned premiums of $10.1 billion up 14% compared to the prior year period and an excellent combined ratio 93.9%. The combined ratio improved 1.5 points notwithstanding elevated catastrophe activity primarily in the central and eastern regions of the United States.

The underlying combined ratio improved 2.9 points to an outstanding 87.7% driven by strong underlying results in each of our three segments. Looking at the two commercial segment together, the aggregate BIBSI [ph] underlying combined ratio wasn’t excellent 88.8% for the quarter. The underlying combined ratio in personal insurance was 86.1% a 6.8 point improvement over the prior year. Turning to investments, our high-quality investment portfolio continue to perform well generating after tax net investment income of $698 million for the quarter 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 after returning $620 million of excess capital to shareholders through dividends and share repurchases and making important investments in our business, as we notched another quarter of successful execution on a number of important strategic initiatives.

In recognition of our strong financial position and confidence in the outlook for our business, I’m pleased to share that our board of directors declared a 5% increase in our quarterly cash dividend to $1.05 per share marking 20 consecutive years of dividend increases with a compound annual growth rate of 8% over that period. Turning to the top line, we grew net written premiums by 8% to $10.2 billion in the quarter. All three segments and excellent execution by our colleagues in the field contributed to our top line success. In Business Insurance, we grew net written premiums by 9% to $5.6 billion. Renewal premium change remained very strong at 10.6%, our retention remained high. The combination of strong pricing and retention reflects deliberate execution on our part and a marketplace that continues to be generally disciplined in the face of persistent headwinds.

The segment generated a very strong $691 million of new business in the quarter, a reflection of the fact that our customers and distribution partners value the products and services that we offer and the experiences that we provide. In Bond & Specialty Insurance we grew net written premiums by 6% to $943 million. That was driven by strong retention of 90% and record new business in our high quality management liability business along with excellent production in our market leading surety business, where net written premiums were up 15%. Given the attractive returns, we are very pleased with the strong production results in both of our commercial business segments. In Personal Insurance, continued strong pricing drove 9% growth in net written premiums.

Renewal premium change was 16.6% in our auto business and 13.4% in home. You’ll hear more shortly from Greg, Jeff and Michael about our segment results. Before I turn the call over to Dan, I’ll share that more than a hundred of my Travelers colleagues and I just returned from our Travelers leadership conference, TLC as we call it. It’s a multi-day event that we host every year for the principals and senior leaders of our most significant distribution partners. Most of our guests have been coming for years, some for decades. We’re also pleased every year to host a number of first timers. The represented firms are industry leaders and collectively account for more than half of our premium volume. We all returned home with the continued confidence that our relationships with these business partners and their firms are as strong as ever.

We confirm that they remain very supportive of the strategic initiatives that we have underway and we took away valuable feedback on how we can accomplish even more together. The independent agent and broker channel remains a robust and growing part of our industry. At Travelers, we proudly partner with more than 15,000 agent broker firms across their 35,000 locations. We’re a top three market for the majority of these firms that’s a critical advantage because distributors place a disproportionate amount of their business with their top few carriers. We don’t take these relationships for granted. As we’ve shared before, the vision for innovation agenda includes optimizing our value proposition as an indispensable partner to our agents and brokers.

We continue to make significant investments to ensure that we realize that vision by offering best-in-class products, services, and experiences. Case in point, in our Bond & Specialty business, we recently conducted a blind survey of agents and brokers, ours and others, to determine how we ranked on the 10 attributes they identified as most likely to impact their placement decisions. Among our key competitors, we ranked first or tied for first in each of the 10 categories. We are over and over again that Travelers deep specialization across a wide range of modernized, simplified, and tailored products, along with a broad and consistent appetite are major differentiators for us in the market. For example, in Business Insurance, we offer a wide variety of coverages and product solutions.

Admitted and DNS, across industries representing more than 85% of domestic GDP. Everything from a bought product for a local florist to a package solution for a main street middle market account to a loss sensitive workers compensation for a large national account. Across our three business segments, our distribution partners generally don’t need to go to multiple carriers to satisfy customers’ insurance needs. And the more lines per account we write, the higher the lifetime value of the customer. The primary focus of ours has been digitizing the value chain, in part to create value and provide great experiences for our agents and brokers, and in part to create efficiencies for them and for us. I’ll share a few examples. In Business Insurance, we believe we were the first to offer agents and brokers a comprehensive portfolio loss data exchange, which allows us to digitally transfer to a small commercial or middle market distributor, loss information on their entire book with us.

This capability enables our distribution partners to efficiently develop important insights into their books of business and supports their marketing efforts. In our middle market business, we believe we were the first carrier to offer multi-line digital submission capabilities. In our small commercial business, agents can transact with us through APIs or through our new quote and issue platform Travis, which is reduced quoting time by 25% for our leading BOP product. Across Business Insurance, nearly all of our largest distributors are currently leveraging one or more of our digital capabilities. In Personal Insurance, earlier this year, we added our proprietary aerial image reviewer to our agent portal. This advanced capability integrates a high resolution, over time photo series of a home into agents quoting workflow.

This gives our partners a bird’s eye view, helping them to better understand the customers or prospects insurance needs and how they may have evolved. We bring our franchise value directly to agents and brokers through distribution, underwriting, sales and claim professionals in more than 80 local offices. Through our expansive and empowered field organization, we foster deep relationships with our partners and are well-positioned to deliver the strength and expertise of travelers at the local level. We’re also investing in our distribution partner’s workforces by providing education and training programs to their up and coming producers. Our Flagship Travelers agency leadership program and agency producer school provide in-person training to invited participants.

We also offer larger virtual programs that have trained thousands of producers, including more than 3,000 just last year. We remain deeply committed to our vision of being the undeniable choice for the customer and an indispensable partner to our agents and brokers. Our pole position with this, with leading distributors is a significant competitive advantage and one that’s hard to replicate. To sum it up, the year is off to a terrific start with strong profitability and production in all three segments, as well as higher investment income. In short, we’re firing on all cylinders. We also continue to invest in important strategic initiatives. We have demonstrated success in executing our innovation strategy, which has contributed to superior returns with industry low volatility, both in our premium base and higher adjusted book value per share.

With this momentum and the best talent in the industry, we remain well positioned for success this year and beyond. And with that, I’m pleased to turn the call over to Dan.

Dan Frey: Thank you, Alan. Core income for the first quarter increased by 13% to $1.1 billion. And core return on equity was 15.4%. The growth in core income was driven by higher net investment income, and despite the one-time tax benefit in the prior year that Alan mentioned, higher underlying underwriting income, partially offset by a higher level of catastrophe losses. Our pre-tax underlying underwriting gain of $1.2 billion was up 50% from the prior year quarter, reflecting higher levels of earned premium and an underlying combined ratio that improved by 2.9 points to 87.7%. The underlying combined ratio was among our best ever and featured continued strong results in both Business Insurance and bond and specialty, complemented by a strong result in personal insurance, reflecting another quarter of significant improvement.

We were pleased with the first quarter expense ratio of 28.7%, which was flat year-over-year despite the impact of Corvus, for which we had a full quarter of expenses, but very little earned premium, as there was no unearned premium carried in from the closing of the transaction on January 2nd. For the full year, we remained comfortable with an expense ratio expectation of 28% to 28.5%. We reported net favorable prior year reserve development of $91 million pre-tax in the first quarter. There was no net prior year reserve change in Business Insurance, as favorable development and workers comp of nearly $100 million was largely offset by modest increases for liability coverages in recent accident years, along with modest charges in our runoff book.

In Bond & Specialty, net favorable PYD of $24 million pre-tax was driven by better than expected results across multiple lines. Personal Insurance recorded net favorable PYD of $67 million pre-tax, with improvements in both auto and home. After-tax net investment income increased 25% from the prior year quarter to $698 million. Fixed income NII was higher than in the prior year quarter and in line with our expectations, benefiting from both higher levels, higher yields, and a higher level of invested assets. Returns in our non-fixed income portfolio were also up from last year’s quarter. Our updated outlook for fixed income NII, including earnings from short-term securities, is $640 million after-tax in the second quarter, growing to approximately $665 million in the third quarter, and then to around $690 million in the fourth quarter.

Regarding income taxes in the first quarter, recall that last year’s quarter included a one-time tax benefit of $211 million related to the repeal of Internal Revenue Code Section 847, and that’s the main reason you see a higher effective tax rate in this year’s quarter. Turning to capital management. Operating cash flows for the quarter of $1.5 billion were again very strong, and we ended the quarter with holding company liquidity of approximately $1.6 billion. As interest rates increased during the quarter, our net unrealized investment loss increased from $3.1 billion after-tax at year-end to $3.7 billion after-tax at March 31st. Remember, the changes in unrealized investment gains and losses do 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 or no impact on our cash flows, statutory surplus, or regulatory capital requirements. Adjusted book value per share, which excludes unrealized investment gains and losses, was $125.53 at quarter end, up 2% from year-end, and up 8% from a year ago. Share repurchases this quarter included $250 million of open market repurchases. We had an additional $138 million of buybacks in connection with employee share based compensation plans. We have approximately $5.8 billion remaining under prior board authorizations for share repurchases. Dividends were $232 million in the quarter, and as Alan mentioned earlier, our board authorized a 5% increase in the quarterly dividend to $1.05 per share.

In summary, the quarter’s strong results once again demonstrate the significant earnings power of our ability to grow premiums across our well-diversified book of business while maintaining very attractive margins, along with steadily increasing net investment income from our growing and fixed income portfolio. And with that, I’ll turn the call over to Greg for discussion of Business Insurance.

Gregory Toczydlowski: Thanks, Dan. Business Insurance continues to deliver exceptional results with a strong first quarter of 2024 in terms of both the top and bottom lines. Segment income of $764 million was up from the first quarter of 2023 driven by higher net investment income and higher pre-tax underlying underwriting income. We’re once again particularly pleased with the quarter’s exceptionally strong underlying combined ratio of 89.2% among our best ever. Net written premiums increased 9% to an all-time quarterly high of $5.6 billion. Renewal premium change was once again historically high at 10.6% with renewal rate change of 7% driving most of the strong pricing. Retention remained excellent at 86% and new business of $691 million was an all-time first quarter high.

Let me give you a little more texture on the continued strong pricing environment. Renewal rate change remained high, coming in at 7% or higher for the fourth quarter in a row. It was also up almost 2.5 points from the first quarter of 2023. In our select and core middle market businesses, renewal rate remained consistent with the fourth quarter. Renewal rate change in our national property book was strong and in the double digits, but down a couple points sequentially. That’s an appropriate result threading the needle between healthy returns in the business and continued weather volatility. From a line perspective, umbrella, property, and auto led the way. All with renewal rate change in or very close to double digits. Renewal rate change was higher compared to the preceding and prior year quarters in GL, Umbrella, Auto, E&CMP [ph].

In workers’ comp, renewal rate change was about half a point more than negative than the preceding and prior year quarters. With continued healthy exposure, renewal premium change in comp continues to be positive in the low single digits. Again, an appropriate result given the strong results in the line. Retention remained healthy across the board. We’re pleased with our production results, the exceptional granular execution by our field organization, and the resulting growth in top line and attractive margins. As for the individual businesses, in select, renewal premium change remains strong at 10.4% with renewal rate change of 4%, consistent with the fourth quarter and up more than two points from the first quarter of 2023. Retention also remained strong at 84%, while new business increased 22% from the prior year quarter to $156 million, driven by the continued success of our BOP 2.0 product.

We’re also encouraged with the impact we’re seeing from Travis, our new front end rate, quote, and issue interface platform that Alan mentioned. In middle market, renewal premium change was 10% with renewal rate change of 7%, consistent with the strong fourth quarter result and up close to three points from the prior year quarter. Retention remains strong at 87%. To sum up, Business Insurance had a great start to the year. We continue to grow our profitable book while investing in capabilities to enhance our position as the undeniable choice for the customer and an indispensable partner for our agents and brokers. With that, I’ll turn the call over to Jeff.

Jeffrey Klenk: Thanks, Greg. Fund & Specialty started the year with another quarter of strong returns in our 29th consecutive quarter of profitable net written premium growth. Segment income was $195 million, driven by strong earned premiums and a combined ratio of 84.5%. Underneath the combined ratio, the underlying loss ratio improved 2.7 points to an excellent 46.4%. As Dan mentioned, the expense ratio was elevated compared to recent periods, primarily due to the Corvus acquisition. We expect that to continue to be the case for the next several quarters as we integrate and earn in Corvus’ business. Turning to the top line, we grew net written premiums by 6% in the quarter. In our high quality domestic management liability business, we again delivered excellent retention of 90% with slightly higher sequential renewal premium change.

We grew new business by 34% from the prior year quarter to a record $91 million, driven by Corvus production. As a reminder, we are in the midst of transitioning Corvus’ $200 million profitable book of business onto Traveler’s paper, which will continue to be reflected in our new business production in the coming quarters. Net written premiums in our market-leading surety business grew a terrific 15%, reflecting continued strong demand for our surety bonds. So we’re pleased to have once again delivered strong top and bottom line results this quarter. And now I’ll turn the call over to Michael.

Michael Klein: Thanks, Jeff, and good morning, everyone. I’m pleased to report Personal Insurance generated first quarter segment income of $220 million and a combined ratio of 96.9%, both of which are significantly improved relative to the prior year quarter. The underlying combined ratio of 86.1% reflects a 6.8 point improvement compared to the prior year quarter, driven by higher earned pricing in both automobile and homeowners and other. Net written premiums grew 9% as a result of continued price increases in both auto and home. In automobile, the first quarter combined ratio of 94.6% improved 10 points compared to the prior year, primarily reflecting a lower underlying combined ratio, as well as favorable prior year development.

The underlying combined ratio of 94.9% improved 8.5 points compared to the prior year, driven by the benefit of higher earned pricing. At the same time, vehicle severity trends moderated, and the quarter also included a modest frequency benefit from the mild winter. As a brief reminder, the first quarter underlying combined ratio is typically our seasonally lowest in auto. We are very pleased with the trajectory of auto profitability. In homeowners and other, the first quarter combined ratio of 99.1% was impacted by higher catastrophe losses, reflecting an active cat quarter, with 19 PCS designated events for the industry, more than 50% higher than the long-term average. The underlying combined ratio of 77.6% improved 5 points, primarily driven by the impact of earned pricing.

Turning to production, our results demonstrate continued disciplined execution of rate and non-rate measures to balance profitability and growth. In domestic automobile, retention of 82% remained strong, and renewal premium change of 16.6% was consistent with our expectations. Given the improving profitability of our book, we continue to expect renewal premium change to moderate throughout 2024. New business premium was consistent with the prior year quarter. Underneath this headline number, new business volumes grew in states where we have achieved written rate adequacy. In homeowners and other, retention of 84% remained strong and was consistent with recent quarters. Renewal premium change of 13.4% reflected higher renewal rate change, and was consistent with our expectations, as we have largely closed the gap in insurance to value.

We expect renewal premium change to remain at these levels throughout 2024, as we continue to seek rate in response to elevated loss costs. The declines in homeowners’ new business and policies in force reflect our ongoing efforts to thoughtfully deploy capacity, as we continue to manage rate adequacy, catastrophe risk, and regulatory risk. Personal Insurance team has made notable progress on improving the underlying fundamentals of our business, while sustaining investments in key capabilities for the future. We’re moving closer to our goal of delivering target returns. Auto profitability continues to improve. We have reached written rate adequacy in all but a few states, and are continuing to temper non-rate actions accordingly. For homeowners, we remain focused on managing growth, while improving profitability.

At the same time, we’re delivering key strategic capabilities. In February, we completed two noteworthy product launches, Quantum Boat 2.0 in the U.S., and Optima Home in Canada. Quantum Boat 2.0 delivers a better agent and customer experience, with improved segmentation, and strengthens our position as a provider of total account solutions, building on the success of Quantum Auto 2.0 and Quantum Home 2.0. Optima Home is an extension of our market-leading Quantum Home 2.0 property product, enabling us to deliver a more robust total account solution in the Canadian market. Both product launches mark further progress on our journey to modernize our products and platforms, making us an even more compelling choice for customers and distributors.

To sum it up, I’m very pleased with the positive start to the year in Personal Insurance and grateful to our team. Now I’ll turn the call back over to Abby. Now I’ll turn the call back over to Abbe.

Abbe Goldstein: Thank you. We’re ready to open up for questions.

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Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of David Motemaden of Evercore. Your line is open.

David Motemaden: Hi. Thanks. Good morning. I had a question just on the more recent accident year reserve increases in Business Insurance and some of those liability lines that Dan was highlighting. I’m wondering, is there any more detail you can provide here with regards to specific accident years? It sounded like GL. Also, I don’t think you guys are alone in seeing some adverse on these years. I think everyone had thought that these were better priced years relative to 2019 and prior. Could you just talk about what exactly is the disconnect here and why there’s some adverse coming on those years?

Dan Frey: Hey, David. It’s Dan. Sure. I’ll take that. Yes. By more recent accident years, we’re not talking about 15 through 19. We’re talking about years more recent than that. I guess the thing I’ll reiterate from my comments is we’re talking about some pretty small movements here. We had some adverse in those recent accident year liability lines. We also had some modest charges in the runoff book. I think what we’re doing here, David, is trying to be reactive to all the information we’re seeing those recent accident years in the liability lines, which tend to take longer to develop and be on the books for a while, are more leveraged to IB&R. We’re just trying to get some more IB&R into those lines to recognize that uncertainty.

Alan Schnitzer: David, its Alan. The other thing I’d add is there’s not any significant new developments here. These are generally the same trends we’ve been talking about for a long time, a little more of the same. Again, to reiterate Dan’s comment, when you look at the overall reserves we have for these lines, these are very small adjustments.

David Motemaden: Got it. Okay. That’s helpful. Then, maybe just switching gears to the personal auto business, Michael, I think you had mentioned that there was maybe some benefit just from mild frequency given a warmer than typical first quarter. Is there any way you could size that just to help us think about the sustainability of the improvement in the auto business?

Michael Klein: Yes, sure, David. I think the mild frequency impact on the underlying combined ratio was a little less than a point.

David Motemaden: Great. Thank you.

Operator: Your next question comes from the line of Gregory Peters with Raymond James. Your line is open.

Gregory Peters: Good morning, everyone. For the first question, I’ll focus on the Business Insurance segment. In the comments and in the stats, I think there’s 7% or higher renewal rate change for four consecutive quarters. Retention seems to be holding up, maybe slipping a little bit. Maybe you could step back and give us some context about, or texture I think is the word you used, about the competitive environment. Curious, given all the rate change that’s coming through, why we haven’t seen more aggressive actions on behalf of some of the competitors yet, or maybe there’s still reconciling previous year’s results as well. I don’t know. Just some color there would be helpful.

Alan Schnitzer: Good morning, Greg. It’s Alan. I’ll start and then turn it over to Greg. Hard for us to comment for competitors, but we do think that in the pricing we’ve been able to achieve with these retentions, you do see a reflection of the competitive environment. I’d say that everybody is, well, what we would speculate is that everybody’s reacting to the same things that we’re reacting to. There’s returns in a much better place after years of pricing and improvements in terms and conditions, but there are some headwinds and some uncertainty out there. All the things we’ve talked about, there’s social inflation, economic inflation, a tight labor market. Weather, geopolitics, I think, puts a certain lens over the way we all see the world. I suspect what you have is a marketplace that’s reacting to an overall level of risk and uncertainty.

Gregory Peters: I guess I’ll pivot then. If you look at the proxy statement, I know ROE targets are a very important metric for you all. I think the target was 12.8% for 2023 up from 11.6% from 2022. Can you talk about how you’re looking at the ROE targets for the company for 2024, please?

Gregory Toczydlowski: Yes, I don’t think we’re going to share that target. It gets competitively sensitive and close to pricing. But I will say we think about that in terms of the overall outlook for our business. We think about the rate at which the interest rate environment is earning into the fixed income portfolio, which turns over on a lag basis. And we think about really what we want to achieve as a margin over both the 10-year treasury and our cost of equity. So those are the things we think about as we put the plan together. Dan, anything else I’m missing there?

Dan Frey: No, you got it all.

Gregory Peters: Got it. Thanks.

Dan Frey: Thank you.

Operator: Your next question comes from the line of Elyse Greenspan with Wells Fargo. Your line is open.

Elyse Greenspan: Hi, thanks. My first question is on personal auto. I think you guys said that Q1 is seasonally the lowest combined ratio quarter, but you still have a good amount of rate earning in the book. So shouldn’t that obscure some of the seasonality, or would you expect Q1 to be better from a combined ratio perspective on the underlying side relative to the other three quarters of the year, even knowing you have rate to earn in?

Michael Klein: Sure, Elyse. It’s Michael. So just taking a step back and talking about auto, the seasonality comment is a long-term average comment. Typically, Q1 is roughly three points lower than the overall combined ratio for the year. But that’s, again, a long-term average and largely an all-else equal environment. So that three points doesn’t adjust for earned effective pricing potentially having impact in the back half of the year. And so you have to make an adjustment for that, no question. But, again, I would just take a step back and maybe put a little more color around my response to David as well. So the mild winter weather benefit we would view as sort of a one-off in the quarter that we wouldn’t expect to continue, we don’t see any reason to assume adjusted for that.

That seasonality is any different today than it was historically. And at the end of the day, to the premise of your question, the earned effective pricing is far and away the biggest driver of the improvement in the quarter, and there’s more of that to come going forward.

Elyse Greenspan: Thanks. And then my second question, I wanted to go back to the liability reserve increase in the quarter. Could you give us a sense, if there were some additions, I know the numbers are modest, like you guys said, on accident year 2023. And then, given the additions you see here, are you adjusting your longer trend, long-term loss trend assumption for the liability lines following this?

Dan Frey: So, Elyse, it’s Dan. I’ll start with the PYD piece and avoid the temptation of splitting what is a small number to begin with into its individual accident years. So we’re not going to do that. I do think if you look at the results in Business Insurance, we talked about the fact that you saw some improvement in the underlying combined ratio, including in the underlying loss ratio. You have the benefit of pricing and a couple of other things like mix, which we talked about last quarter. The same time, like in any quarter, you’ve got some puts and takes, and one of those puts and takes in this quarter is booking a little bit more IB&R in the current accident year to reflect some of the uncertainty that we’re seeing. Not big numbers, but we are reacting to it.

Elyse Greenspan: Thank you.

Operator: Your next question comes from the line of Brian Meredith with UBS. Your line is open.

Brian Meredith: Yes, thanks. First one for Michael. Michael, I’m just curious, one of your competitors in the personal auto space is showing some pretty strong growth in policy and so forth, really kind of capitalizing the market. I’m just curious, are you in a position at this point to kind of go after and get some growth given how your results have improved so much?

Michael Klein: Sure, Brian. Thanks for the question. Certainly, again, underneath the results in the quarter, if you look at it on a state-by-state basis, the states where we have achieved written adequacy, we’ve achieved written adequacy, we did achieve new business premium growth. And consistent with our comments last quarter, what I would say to you is we’re executing a very granular state-by-state, geography-by-geography strategy as we look to temper some of the non-rate actions that we had in place in auto. And if you take a step back, if you look at it over the last couple of years, we have a small increase in policies in force in auto over the last couple years or so. We got a small decrease in property, all the while premiums are up 30-plus percent.

So we feel pretty good about the starting point. And directly to your question, our focus in auto is on profitably growing auto on a go-forward basis. Our focus on home remains on improving profitability, and so that’s why we talk about sort of balancing profitability and growth across the whole portfolio.

Brian Meredith: Makes sense. Thanks. And then a follow-up on the Business Insurance. Alan and Greg, I wonder if you could kind of dissect kind of the competitive landscape, kind of large, middle, small. Are any of them kind of incrementally more competitive? It feels like small, middle seems to be a little more stable right now than maybe the large from what we’re hearing in the marketplace.

Alan Schnitzer: Brian, let me just comment and I’ll turn it over to Greg. I think all of these markets are always competitive all the time, and that’s sort of the way we think about it. So I’m not sure. I mean, as Greg shared in his prepared remarks, to the extent that you’re thinking about, renewal price change as a proxy for competition, and I don’t think it is, by the way. That did come down a couple of points, but, again, still among our highest rate achieved in any line, and, double digits and a reflection of terrific returns in the line. So I don’t think there’s been any sea change in or any significant shift, among those businesses. I’d say competitive business that we have. I don’t know, Greg.

Gregory Toczydlowski: Yes, maybe I’ll touch on new business since Alan just hit on rate. And you can see in the new business we had a real strong quarter in small commercial up 22%, so that we are seeing a little more dislocation in that market than we are in middle market. But the combination of our new segmented product, BOP 2.0, and our new commercial automobile product, we feel terrific about, our position there and where we’re writing that new business and what returns we’re going to achieve there. Middle market still had, the delta wasn’t as big on new business, but we had a record result on the first quarter of the prior year, so really strong new business levels. So not as much dislocation, Brian, in the middle market, but really feeling good about the combination of where the returns are and our field team staying really active on the new business front.

Brian Meredith: Terrific. Thank you.

Operator: Your next question comes from the line of Ryan Tunis with Autonomous Research. Your line is open.

Ryan Tunis: Hey, thanks. Good morning. I just had a couple, I guess, on exposure acting as rate. So, yes, exposure acting as rates clearly been a tailwind in particular for margins. It’s been flagged, for the past couple years, especially in the workers’ comp line. But this is the first quarter in a long time I think, I’ve seen that workers’ comp NPW shrink year-over-year. So curious sort of, what dynamic might be going on there?

Gregory Toczydlowski: Yes. Good morning, Ryan. How you doing? This is Greg. Yes, exposure continues to be strong, down somewhat as you look at the businesses. Not a surprise to us as the Fed has been very active in curtailing inflation. So definitely we’re seeing some of that in workers’ comp. But the primary driver of the down in comp is, we do still have rate reductions, as I shared in my prepared comments, relative to the other products. And as we’re an account solution, we’re going to remain very active and disciplined with our underwriting. And as we invoke both of those dynamics in the business, that’s what drove the overall net written premium change in the comp line.

Ryan Tunis: Got it. And I guess if I look at the overall, the exposure is still positive across the book. So clearly something else is picking that up. On the property side, are you guys still getting positive exposure adjustments from like insured value adjustments? Or is that really just kind of a 2023 catch up thing that’s already happened?

Gregory Toczydlowski: Yes, as you can imagine, it’s somewhat linear with inflation, Ryan. So 2023, we had some record results of trying to keep up with the replacement costs and building materials. So it’s down somewhat from 2023, but still up overall.

Alan Schnitzer: Hey, Ryan, as a macro comment, if you look at that exposure, it’s easy to get very focused on recent periods. But if you look at that number over time, it’s a pretty healthy number that I think is consistent with what is today a pretty healthy economy.

Ryan Tunis: Thank you.

Operator: Your next question comes from the line of Meyers Shields with KBW. Your line is open.

Meyers Shields: Great, thanks. If I can stick with property for a second, last year when we tracked renewal pricing changes, it sort of peaked in the second and third quarter. And I’m wondering whether there’s a seasonal element to that or we should just sort of follow that curve to anticipate smaller rate increases because of the reduced indicated need over the course of 2024?

Alan Schnitzer: Meyer, yes, there really isn’t a seasonal element of pricing overall. Our field underwriters are going to look at the exposure at hand and the renewal book will change over time as we write incremental new business. And so overall, it’s dependent on the exposures that come up for that particular quarter. That’s more of the dynamic than any seasonality.

Dan Frey: Yes, Meyer, it’s Dan. I’ll just add in case your question is not just seasonality of pure price change, but within the property line, there’s some seasonality of its mix on a written premium basis. And to your point, and you can see it in the financial supplement, the second and third quarters tend to be relatively higher levels of commercial property compared to what comes up in Q1 and Q4.

Meyers Shields: Okay, that’s very helpful. Thank you. If I can switch gears, I wanted to talk a little bit about workers’ compensation reserve releases because based on the statutory numbers, there were like 900 million of releases in 2023. And I think you said less than 100 this quarter. So that’s slowing down. I was hoping you could maybe break that down either by accident year or the difference between actual claim emergence versus indications.

Dan Frey: Yes, Meyer, it’s Dan. So again, I’m going to resist the temptation to do it by accident year. It’s multiple accident years in comp as it normally is. We’re really just going through the same robust and disciplined review process every quarter in comp and in every line. We’ll go through the latest data. We’ll look at how it might have varied from what our actuarial models would have expected. And we’ll do our best to determine the reasons why the actual varied from expected and book the necessary adjustments accordingly. And the number is just sort of going to be what it’s going to be. And if you think about this quarter versus last quarter or this quarter versus next quarter in any particular line, prior reserve development might be more, might be less.

We’ll wait and see what the data tells us. But it’s more of the same in terms of thematically what’s coming through. We have continued to make assumptions around what long-term severity is going to be. We have assumptions around what frequency is going to be. And that of those things has been some more good news in the first part of this year.

Alan Schnitzer: Meyer, I’ll also add that as we, one part of our consideration process as we go through this is to make sure that we’re appropriately reflecting our thoughts about uncertainty. So that’s, just something to keep in mind.

Meyers Shields: Okay. That’s very helpful. Thank you so much.

Operator: Your next question comes from the line of Mike Zaremski of BMO. Your line is open.

Mike Zaremski: Okay. Great. Good morning. On the, maybe question on the Business Insurance segment, when we look at the underlying combined ratio, it’s, it’s shown a nice trend of, I guess improvement versus prior years. And that’s kind of despite you all kind of topping off IB&R and kind of adding to reserves on recent vintages. And so just curious about that dynamic, how is it that your view of kind of the underlying has stayed excellent kind of, and not kind of drifted a bit higher as you’ve taken some just small actions? Is it just pricing powers been, you think just much higher than loss cost trend or any color you have would be helpful?

Alan Schnitzer: Let me, let me start and I’ll turn it over to you, Dan. So we understand that sometimes the investment community can get very focused on a couple of metrics as you think about what drives it, but, but that’s really not the way it comes together. It comes together through all the things that, that impact margins. And so, if you look at the excellent result this quarter earn pricing was a significant benefit favorable mix was a little bit of a benefit and there was some small items going the other way that that partially upset some of that benefit. As Dan mentioned, we booked a little bit more IB&R as a reflection of uncertainty, a little bit of non-CAT weather a little bit of discrete large loss activity none of those things significant and as you can tell from the fact that it was an excellent and improving number but every quarter there’s there are just a bunch of factors that add up and puts and takes.

Dan Frey: Yes, that’s right. And I think the only thing I’d add to that and I’d sort of confirm your premise in the question Mike is it’s really a very strong pricing environment if you go back and look at the i-commentary over the last year or two it’s one of the reasons we’ve been so pleased to see retention remain as a strong as it has because we love the profile of the book and we’re trying to, so we’re happy to be retaining it, happy to get pricing on top of it and that’s improving margins and then in any quarter it’s going to be impacted by some of the things that Alan just mentioned.

Mike Zaremski: Okay that’s helpful. My last follow-up is on maybe more on homeowners’ personal lines. Given the, what seems like continued trend of higher task losses, any changes you’re seeing in the industry or the travelers trying to implement on terms and conditions such as roof replacement, are there any trends there we should be thinking about? Thanks.

Michael Klein: Sure, Mike. It’s Michael. Absolutely. I think if you, if you dig underneath our comments around non-rate actions, there’s a variety of things that we’re executing on, and many of which we’re seeing across the industry. And examples include, first of all, eligibility, right, based on an evaluation of the exposure also eligibility on age of roof, underwriting restrictions around things like roof condition and tree overhang. Our primary approach on sort of risk sharing, if you will, is really to focus on AOP and wind-hail tornado deductibles. We’ve implemented higher wind-hail tornado deductibles in virtually every severe convective storm exposed state across the country. I think the last count were up to, I think, 21 states where we’ve increased deductibles to help to deal with the exposure.

And then, managing distribution and managing appetite to manage aggregation of exposure, within a local or a state-by-state geography. So really, those are some examples of the variety of actions we’re taking from a non-rate perspective, which is really what we’re referring to when we talk about managing growth and improving profitability and property.

Mike Zaremski: Thanks.

Operator: Your next question comes from the line of Michael Phillips with Oppenheimer. Your line is open.

Michael Phillips: Thanks. Good morning, everybody. Totally different turn here. Florida homeowners market, obviously, market has not been a big player. And I’m wondering if any of the reforms that have been taking place in the past couple of years have given you pause to maybe revisit that?

Michael Klein: Sure. Great question and certainly something that we spend time evaluating. What I would say is certainly reforms in Florida, some of the depopulation of citizens in Florida are certainly things that make Florida look better than it has in the past. But it is still a highly CAT exposed geography. It is still a place where we think the risk-reward is not in balance. And one of the things, frankly, in Florida that remains a significant concern is the potential assigned risk obligation in the event of a significant catastrophe. And so, and I think Alan’s referred to this in the past. We see signs of improvement in the state, but it’s going to take more than what we’ve seen. And one of the things that it causes you to think about is whether or not you can compete in Florida on an admitted basis versus an excess and surplus lines basis.

So those are all some of the considerations around Florida. The upshot for us is while we do see those signs of improvement, we haven’t seen enough change to cause us to change our perspective on wanting to, reopen for new business and property in Florida.

Alan Schnitzer: Yes, the TOR [ph] reforms that they enacted we think were an excellent start. We certainly love other states to follow suit because we think regulatory reform is important as it relates to affordability, not just insurance, but of home ownership and autos. But there are some other structural things in the state that are, just make it difficult at the moment. We’ll continue to reevaluate it.

Michael Phillips: Okay, great. Thank you guys. Thanks for the color. Second question, personal auto. Are you seeing any sign there of kind of just higher attorney [ph] involvement in personal auto that give you [Indiscernible] concern?

Alan Schnitzer: Sure, Michael. I would say that, in Q1, it’s, first of all, bodily injury is where most attorney involvement occurs. And in Q1, it’s the longest tail element of the exposure we see in personal insurance. So concluding anything based on what we saw in the quarter from a bodily injury standpoint is a challenge. But the same, sort of social inflation, litigation, abuse challenges that Greg has talked about a lot in Business Insurance, we’re not immune from in personal insurance. We have seen over a longer period of time increased attorney involvement impact bodily injury. But all that said, if we look at bodily injury results in the quarter, bodily injury loss trends were pretty consistent with what we expected.

Michael Phillips: Okay. Thank you very much.

Operator: Your next question comes from the line of Michael Ward with Citi. Your line is open.

Michael Ward: Thanks. Good morning. I was just curious, the growth in commercial auto accelerated pretty meaningfully. Was that mostly price or how should we think about the pricing environment in that line?

Michael Klein: Good morning, Michael. Yes, it was. I think most of the growth that happened from a net written premium change was due to RPC. One thing I would point out, and I referenced a little bit earlier, we do have our new automobile product that we’ve rolled out across all Business Insurance in our express select underwriting route model and also in our transactional middle market business, our TCAP [ph] product. So we feel, terrific about that latest segmentation and that should ultimately improve the return profiles on that business overall. But the biggest change was RPC.

Michael Ward: Great. Thank you. And maybe just back to GL, you noted the charges were relatively modest. I guess just compared to last year’s charges, are they similar, less, or any other color around that? Thanks.

Dan Frey: Hey, Michael. It’s Dan. I guess I’ll say if you just look at the comment being that, comp was approaching 100 million, the segment was zero, some of it was runoff, you could get to an implication of sort of a box around how much the GL must have been. And for whatever it’s worth, and I’m not sure how much it’s worth, that would tell you that the first quarter number was probably less than some of the magnitude that we saw in last year. But again, we’ll do a full evaluation again next quarter and the number will be more or less favorable or unfavorable depending on what the data tells us.

Michael Ward: Thank you.

Operator: Your next question comes from the line of Robert Cox with Goldman Sachs. Your line is open.

Robert Cox: Hey, thanks. So we saw some data potentially indicating a slowdown in premium growth in the E&S market. And I know Travelers has about 2.5 billion in E&S and you guys have indicated that margins there are quite attractive. Just curious if you saw any changes in competitive dynamics in E&S or pricing.

Gregory Toczydlowski: Hi, Robert. This is Greg. Yes, as we’ve shared with you, underneath that 2.5 billion, we have quite a bit of diverse businesses that drive that. And we didn’t really see any material slowdown in the segments that we compete in.

Robert Cox: Okay, got it. And maybe secondly, I’m curious as I think you’ve started to go through some of the re-underwriting of the Corvus book, if you’ve learned anything material and if there’s any major takeaways.

Jeffrey Klenk: Yes, thanks, Robert. It’s Jeff. We’re 3.5 months now into our integration. We’re feeling really good about bringing and leveraging the capabilities of both organizations. I would tell you that we feel really good about the quality and the profitability of the Corvus book of business. It’s consistent and we’re taking some of those capabilities. We’ve already completed the scans using their proprietary technology to the existing Traveler’s book of business. Really comfortable with what we’re seeing. Thanks for the question.

Robert Cox: Thank you.

Operator: We have time for one more question. It will be from Paul Newsome of Piper Sandler. Your line is open. Paul Newsome, your line is open.

Paul Newsome: Hi, good morning and thanks for squeezing me in. Maybe just a couple of quick personalized questions. Is it fair to say that the renewal premium change for both auto and home, given what you’ve already filed and the fact that you’re getting closer to or you’ve gotten most states to adequacy, that we should see that decelerate fairly meaningfully in the next couple of quarters? Just any thoughts about that so that we aren’t surprised?

Michael Klein: Sure, Paul. It’s Michael. I would separate auto and home. For auto, you’ll see RPC moderate as we go throughout the year. I wouldn’t suggest it’s going to be a sharp decline. One of the things that I think is important to think about as you think about RPC over time for us is we write mostly 12-month policies in auto. While someone who writes a lot of six-month policies is going to see RPC accelerate quickly on the front end, they’re going to actually see it decelerate more quickly on the back end. Ours is going to be a more gradual increase and then a more gradual decrease because we file a rate in May of 2023. We’re still renewing policies at that same higher rate in April of 2024. So just a little bit of context for why I say it’s going to be more of a gradual deceleration in auto RPC.

In property RPC, we don’t anticipate a deceleration. We’re going to continue to drive rate into the property portfolio in response to increased loss costs. I would expect RPC to remain relatively consistent through the balance of 2024 in property.

Paul Newsome: I did notice that the renewal rate in home did come down quite a bit, at least sequentially. Is that just sort of an anomaly or is it something to note?

Michael Klein: Sure, Paul. The RPC drop from Q4 to Q1 in property is what we were referring to last year when we talked about the fact that we’ve made a lot of progress on insurance to value in home. So when you think about renewal premium change in personal lines property, it’s really driven by two primary things. One is rate and then the other is increasing the coverage limit on the dwelling. And in 2022 and 2023, we made dramatic increases in property coverage A limits in home that drove a decent amount of the property RPC. In my prepared remarks, that’s why I mentioned that when you look at that 13.4%, it actually reflects improvement in rate from last quarter to this quarter. And the drop is really because we’ve essentially caught up on insurance to value in property.

So that’s why I say you’re not going to see a further incremental change in RPC due to that coverage A limit dynamic because that’s just going to stay the same. And now what you’re looking at is mostly our outlook for rate in property for 2024, which again is to keep it pretty consistent.

Paul Newsome: Thank you. That helps always much appreciated.

Operator: Thank you. I will turn the call to Ms. Goldstein for closing remarks.

Abbe Goldstein: Thank you all very much again for joining us this morning. And as usual, if there’s any follow up, please feel free to reach out directly to Investor Relations. Have a great day.

Operator: This concludes today’s conference call. We thank you for joining. You may now disconnect your lines.