Operator:

Good morning, ladies and gentlemen. Welcome to the Second 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 July 19, 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.

Alan Schnitzer:

Thank you, Abbe. Good morning, everyone, and thank you for joining us today. We are pleased to have generated a strong bottom line result in the quarter that included a record number of severe convective storms across the United States. Excellent underlying results, favorable net prior year reserve development, and higher net investment income contributed to core income of $585 million or $2.51 per diluted share. Underlying underwriting income of $1.2 billion pre-tax was up 55% over the prior year quarter. This year's exceptional result was driven by record net earned premiums of $10.2 billion and a consolidated underlying combined ratio that improved 3.4 points to an excellent 87.7%. Net earned premiums were higher in all three of our business segments. The underlying combined ratio in our Business Insurance segment was an excellent 89.2%, and the underlying combined ratio in our Bond & Specialty business improved 1.7 points to a very strong 86.1%. Looking at our two commercial segments together, the aggregate BI, BSI underlying combined ratio was an outstanding 88.7% for the quarter. The underlying combined ratio in Personal Insurance improved by nearly 8 points to a terrific 86.3%. Turning to the top line, we grew net written premiums by 8% to $11.1 billion in the quarter. Outstanding execution by our colleagues in the field across all three segments contributed to our top-line success. We are very pleased to report terrific production results in our commercial segments, where, as you've heard, margins are attractive. In Business Insurance, we grew net written premiums by 7% to more than $5.5 billion. Renewal premium change remained very strong at 10.1%, while retention remained high at 85%. A combination of strong pricing and retention reflects deliberate execution on our part and a marketplace that continues to be generally disciplined. New business increased 9% to a record $732 million, 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 8% to more than $1 billion, driven by very strong retention of 90% in our high-quality management liability business, and excellent production in our market-leading surety business, where we grew net written premiums by 11%. At year-end 2023, we shared that across our two commercial segments, our E&S writings had reached $2.5 billion for the year, doubled the level from 2021. Year-to-date, we've grown E&S net written premiums by 16%. The margins continue to be quite attractive. In Personal Insurance, continued strong pricing drove 9% growth in net written premiums with growth of 10% in auto and 8% in home. You'll hear more shortly from Greg, Jeff, and Michael about our segment results. Turning to investments, our high-quality investment portfolio continued to perform well, generating after-tax net investment income of $727 million, driven by strong and reliable terms from our growing fixed-income portfolio and higher returns from our non-fixed income portfolio. Our investment results benefit from the strong cash flow we've generated over a sustained period. This quarter marks the seventh consecutive quarter in which we've generated more than $1 billion in operating cash flow. This isn't a measure that we or the industry talk a lot about, but it's important. Cash flow is what enables us to make strategic investments in our business, return excess capital to shareholders, and grow our investment portfolio. Since 2016, we've invested $11 billion in important technology initiatives, returned more than $20 billion of excess capital to our shareholders, and grown our investment portfolio by more than $25 billion. It's a virtuous cycle as well-conceived and executed strategic initiatives, an effective capital management strategy, and a thoughtful investment strategy contribute to attractive returns and growth in adjusted book value per share. Strong underwriting is the flywheel that sets it all in motion. Thanks to exceptional franchise value and excellent marketplace execution, we've profitably grown our premium base from about $25 billion in 2016 to more than $40 billion today. Our growth over this period of time has been largely organic, selling products in which we have deep expertise through distribution partners with whom we have longstanding relationships, and in geographies where we have a thorough understanding of the regulatory environment and other market dynamics. In other words, our competitive advantages have enabled us to effectively execute a relatively low-risk growth strategy. The success of that strategy is evidenced by a return on equity that has averaged about 900 basis points over the 10-year treasury over that period at industry-low volatility. What all this boils down to is steady consistent growth and adjusted book value per share after making important investments in our business and returning substantial excess capital to shareholders. And as a leader in the US PNC market with broad product capability, demonstrated success with innovation and plenty of market share headroom, we're confident there's a lot more opportunity in front of us. To sum it up, we continue to be very confident in the outlook for our business. Our results for the first half of the year include strong premium growth, an excellent bottom line result, record operating cash flow, and steadily rising investment returns in our growing fixed income portfolio. With a strong and diversified business and balance sheet, we delivered 13.6% core return on equity over the last 12 months, despite substantial industry-wide catastrophe losses. With this momentum, we remain well-positioned for success this year and beyond. And with that, I'm pleased to turn the call over to Dan.

Gregory Toczydlowski:

Thanks, Dan. Business Insurance had another strong quarter in terms of both top and bottom line results. Segment income was $656 million, up more than 60% from the prior year quarter, driven by prior year reserve development, higher net investment income, and higher underlying underwriting income. We're once again particularly pleased with the quarter's exceptionally strong underlying combined ratio of 89.2%, our best second quarter result ever. For modeling purposes, property losses for this quarter were about a point favorable to our expectations. Net written premiums increased 7% to an all-time second quarter high of more than $5.5 billion. Renewal premium change was once again historically high at 10.1% with renewal rate change of 6.5% driving the majority of the strong pricing. Retention remained excellent at 85% and new business was up 9% to a record quarterly high of $732 million. In terms of pricing, we're pleased to sustain strong levels of renewal premium change, which was double digits for the fifth quarter in a row. The strong pricing was broad-based with renewal premium change in every line other than workers' comp at or pretty close to double digits. In terms of pure renewal rate change, we're pleased that the exceptional granular execution by our field organization reflects and appropriately balances the current return profile and environmental trends for each line. In terms of sequential rate movement from the first quarter, CMP, auto, umbrella, and workers comp all increased. Umbrella and auto led the way with double-digit rate increases. Renewal rate change in our property line moderated, driven by the National Property business, reflecting strong returns after several years of substantial compounding rate and improvements in terms and conditions. Even with these strong pricing levels, retention was improved or flat in every line other than property, where some large accounts in our National Property business in particular traded away to the subscription market this quarter on terms we weren't willing to accept. As for the individual businesses, in select, renewal premium change was exceptionally high at 12.3% with the renewal rate change of 5.3%, up a point and a half from the first quarter and more than 2 points from the second quarter of last year. Retention remained healthy but ticked down a bit from recent periods to 83% as we begin to purposely optimize our risk return profile in a couple of targeted geographies and classes. New business remains strong and increased 8% from the prior year quarter. We're pleased with the impact that our production, product, and platform initiatives are having in the marketplace and building a high-quality mix of business and driving profitable growth in this market. In middle market, renewal premium change remains strong and consistent with recent levels at almost 10%. Renewal rate change of 7% was up more than a point from the second quarter of last year and has now been at or around the 7% mark for the fourth consecutive quarter. Retention also remained strong at 89%. A new business of $383 million was the highest ever second quarter result. Lastly, fresh off my most recent round of field visits, I couldn't be more pleased with our team's execution, ideation, energy, and enthusiastic adoption of the tools and capabilities that have come from the strategic investments we've been making. And our distribution partners were once again crystal clear about our team's value and shared many examples of how our local teams, the best in the business, distinguished themselves. These trips continue to highlight for me the value of our high-performing talent in training curriculums, as well as the dividends we are receiving from our investments to be 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.

Michael Klein:

Thanks, Jeff. Good morning, everyone. In Personal Insurance, an excellent underlying underwriting result and strong net favorable prior year reserve development drove a significantly improved bottom line result relative to the prior year quarter, despite another period of elevated industry-wide catastrophe losses. The underlying combined ratio of 86.3% reflects nearly an 8 point improvement compared to the prior year quarter, primarily driven by higher earned pricing in both automobile and homeowners and other. Continued strong price increases in both auto and home drove 9% growth in net written premiums. In auto, we're pleased with another quarter of improved profitability and with the underlying fundamentals of the business. The second quarter combined ratio of 97.9% improved more than 10 points compared to the prior year quarter due to a lower underlying combined ratio as well as favorable prior year development. The underlying combined ratio improved more than 8 points, driven by the benefit of higher earned pricing and to a lesser extent lower losses from physical damage coverages. For modeling purposes, we view roughly 2.5 points of the improvement in the quarter as non-recurring. In homeowners and other, the second quarter combined ratio improved over 16 points compared to the prior year quarter, reflecting a lower underlying combined ratio, as well as higher favorable prior year development. While catastrophe loss dollars were similar to the prior year quarter, they had a smaller combined ratio impact as price increases continue to benefit earned premiums. Catastrophe losses this quarter, primarily resulting from severe convective storms, again significantly exceeded long-term industry averages. The 28 PCS designated cat events were the most ever for a second quarter and 150% of the historical 10-year average. Our catastrophe losses in the quarter were consistent with our market share. And for context, our average annual cat losses over the last five and 10 years remain below our market chart. This most recent experience will of course be reflected in our models going forward and we will continue to weigh our recent experience more heavily in our ongoing process of optimizing our exposure, underwriting, and pricing. The underlying combined ratio of 77.6% improved 7.6 points, due in large part to lower than expected fire and non-weather water losses, as well as the benefit of earned pricing. For modeling purposes, we expect approximately 5 points of the improvement in the homeowners and other underlying combined ratio to be nonrecurring. Turning to production, our results reflect the ongoing execution of a granular state-by-state strategy as we balance profitability and growth across the portfolio. In domestic automobile, retention of 82% remains strong. Renewal premium change of 15.8% continued to moderate as anticipated. Auto renewal premium change will continue to gradually decline, reflecting the improved profitability on the line. While new business premiums were higher than the prior year quarter in many states, new business premium in aggregate was down slightly relative to the second quarter of last year. This is the result of our continued efforts to manage auto profitability in a few remaining challenge states, as well as the cross-line impact resulting from some of our property actions, particularly in high-risk cat areas. Production results in homeowners and other reflect our focus to manage growth, while improving profitability. Renewal premium change increased sequentially to 15.1%, reflecting higher rate change, while retention remains strong at 85%. We expect renewal premium change to remain at this level through year end. As we intended, new business and policies enforced declined, reflecting our efforts to thoughtfully deploy capacity. To sum up for the Personal Insurance segment overall, we're pleased with our progress as we continue to deliver improved profitability. We're confident that the actions we've taken and continue to take will result in a profitable growing portfolio of personalized business over time. Now, I'll turn the call back over to Abbe.

Operator:

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from David Motemaden with Evercore ISI. Please go ahead.

Dan Frey:

Hey, David, it's Dan. So you're right. We've seen umbrella in the general liability lines require some strengthening in the last few quarters. As we said in prepared remarks, we think that we're being proactive in reacting early and being decisive in meaning that we're being reasonably comprehensive in a meaning -- by reacting in a meaningful way to what we're seeing. I think the confidence we have is two pieces. One is, we are reacting both to the changes in actual versus expected and allowing for longer development factors going forward on the very recent accident years. So for the most part, we haven't even seen these claims come in yet, but we are allowing for the fact that when claims come in, they're likely going to cost more and take longer to settle. And then I think importantly, the 2015 through 2020 period has held up pretty well, given the actions that we had taken through the end of 2023.

Dan Frey:

Yes, David, it's Dan again. So I'll take that. So I'll start with the second part first. So every time we have an impact on PYD, we reevaluate, is that going to have an impact on current loss year, jump off point, or loss trend. We had said last quarter that we had added beginning last quarter some IBNR to the current accident year. So we had already taken some action. The changes that we made in PYD have some carry forward impact on the umbrella line, but there's puts and takes across a variety of lines. And when you blend them all together inside of Business Insurance, it did not result in a big movement. In terms of the overall movement in BI's underlying loss ratio, you've got the big parts. There's still some benefit from earned pricing. Greg called out the fact that property losses, other than cat, were about a point favorable than our expectations. Other than that, in any quarter, you're going to have a half a dozen things that move favorably or unfavorably from mixed to base year to the impact of reinsurance, and you're seeing the net of those things. Nothing significant in there in terms of those individual movements.

Operator:

Your next question comes from Elyse Greenspan with Wells Fargo. Please go ahead.

Gregory Toczydlowski:

At least. This is Greg. Good morning. Yes, you can see in the webcast the individual pieces of select and middle market. And select is up, and middle market is flat. And I did call out that National Property is the primary driver of that slight deceleration.

Dan Frey:

Yes, Elyse, it's Dan. So I think it's a pretty narrow range. We're giving you that it's three accident years, 2021, 2022, and 2023. I don't really feel the need to break it apart between the three. And it's a little bit more of the same, right? Things have continued to come in a little higher, whether it's attorney rep rate or severity, jury awards, all of those things, lengthening of the tail. What we're doing this quarter is, again, both reacting to what did we see that came in differently than what we would have expected and adjusting the development factors that we're going to use going forward? And that's what we mean when we say we think we're being proactive and decisive in this quarter's action.

Operator:

Your next question comes from the line of Rob Cox with Goldman Sachs. Please go ahead.

Alan Schnitzer:

Yes, Rob, good morning. It's Alan. That is really an evaluation of our own data. We think we probably have the market relevance to understand what's going on more broadly, but that's based on our view of our data.

Dan Frey:

Rob, it’s Dan. So not really. Pricing was about in line with what we would have expected. I'll just remind you that although cost of reinsurance might have gone up a little bit, we're getting price increases on the direct side, so the margin impact is insignificant probably, if any.

Operator:

Your next question comes from Gregory Peters with Raymond James. Please go ahead.

Dan Frey:

So Greg, it's Dan. I'll start, and maybe Greg will chime in. So national accounts, on a relative basis, in terms of its contribution to Business Insurance in total, not the biggest piece, and its large accounts. So how many you retain -- you could lose one account in a quarter and that has a big impact on retention. You could write one new big new piece of business. That's going to change the premium base. So I'd say two things about national accounts. One, we're really happy with the profitability of that book. Two, I'm not surprised to see the variability given

Gregory Peters:

Fair enough. I guess for my follow-up question, I'm going to pivot to the Personal Insurance segment. And Michael, I appreciate your comments about the challenge to the states and trying to get the right positioning and pricing for your auto product. One of the largest and most visible peers seems to be really gaining share at this moment in time in the personal auto space. And I guess, when I look at your policy for in-force count going down, both in the first and second quarter, I'm just curious if you think your competitive positioning in personal auto is consistent with what's going on in the marketplace.

Alan Schnitzer:

And Greg, I would just point out at a very high level. Michael points out some distinguishing characteristics of our Personal Insurance business, there are some significant benefits from that business model. I mean, obviously, it's having the impact it's having on growth, but there are some significant offsetting benefits to that business model, and we're well on the way to sorting this out.

Operator:

Your next question comes from the line of [Jimmy Bueller] with JP Morgan. Please go ahead.

Dan Frey:

Yes, Jimmy, it's Dan. So, if you look at the reinsurance detail we gave at the January 1 renewals and now again at July 1 renewals, we're not really holding onto more. We tend to buy more tail coverage on big cat events. The attachment points have gone up, but the attachment points have gone up naturally as a result of the growth in the premium base and the growth of the insured values. So what's coming through our net result is not really any impact from less use of reinsurance.

Michael Klein:

Sure, Jimmy. I would say, in terms of pricing, we continue to see renewal premium changes and price changes working their way into books of business across the industry similar to what we're seeing. I do think it's important when you look at our renewal premium change number though, to distinguish between what's coming through renewal premium change and the rate that's being filed for go-forward business, right? What you're looking at when you look at our renewal premium change number and many renewal premium change numbers across the industry is the lagged effect of the rate that's already been taken. When we look at filing activity for ourselves and for others, you see a much less significant amount of rate filing this time this year than you would have seen this time last year. And so again, what you're seeing in renewal premium change in auto is the lagged impact of that. In terms of your question about advertising, certainly we see increased advertising amongst some of our competitors who are big advertisers across the industry. In marketplaces where we bid for demand, where we bid for leads. We see the prices of those leads going up. That's reflective of that increased advertising spend and that increased appetite for leads. But I think that both of those things, I think, demonstrate that what you're seeing is improved profitability in auto across the industry and a pivot towards profitable growth very consistent with the conversation and the messaging that we're sharing.

Operator:

Your next question comes from the line of Joshua Shanker with Bank of America. Please go ahead.

Michael Klein:

Sure, Josh. The biggest driver of the policy count decline in homeowners is the reduction in new business. You see where the retention holding relatively steady. And so for the most part, new business production being down is what's driving the [PIF] (ph) decline. I'll also say that, sort of consistent with my comments earlier, the new business reduction in the cat challenged states is down more significantly than the new business reduction you see in the production highlights as we work to manage the distribution of our property exposure. There is some limited non-renewal activity that I would say is really twofold. One is normal course, good hygiene, evaluating the worst performing risks in the portfolio and taking action on them. The other is, some targeted non-renewals, again, as we manage the geographic distribution of our exposures and manage growth in some higher concentration, higher cat geographies. But again, those actions are all intentional and the new business reductions, as I said in my prepared remarks, really are as intended as part of our efforts to improve profitability.

Alan Schnitzer:

Josh, I think we're very comfortable with being a net underwriter. We think that we've got the data, the analytics, the culture to manage this the right way. And you can't expect a reinsurer to take on losses without conveying a margin to them. And so, when we look at the strength of our underwriting, we think that there's a real advantage for us in being largely a net underwriter.

Alan Schnitzer:

Thank you.

Ryan Tunis:

Hi, thanks. Good morning. First question, a couple parts on casualty. First of all, I guess with what you're seeing in Umbrella, is it safe to assume that the underlying cause of a lot of those losses you're seeing is mostly auto-related? That's the first part. And then the second part, I remember like six years ago in 2019, you guys experienced some of this earlier than others. Is there something about your small middle market, your writing lower limits, that there's a little bit less of a tail. So just to make sure your business kind of experiences some of the inflationary impacts you've seen from 2021 to 2023 faster.

Joshua Shanker:

Got it. Then I guess just to follow up. I think Greg mentioned lower retention in select accounts. I heard the word geography. I mean, to the extent that you are seeing elevated cats in commercial lines, I'd be curious if you guys think you are. Is that more of a small commercial issue or if not, is it kind of more middle market or a national account?

Alan Schnitzer:

It's the kind of optimizing we do in every business every day.

Alan Schnitzer:

Thank you.

Brian Meredith:

Hey, thanks. I only have a couple of quick questions here. First one, there was some legislation in Florida, I guess, that passed in June that talked about Medicare reimbursement rates to doctors that will affect workers' comp. I'm just curious if you could maybe talk a little bit about how that would affect comp, pricing and loss cost severity trends. And is that something you see continuing throughout the US?

Dan Frey:

And Brian, in terms of any specific state change that you mentioned, our product managers are looking at that at the state level. They're estimating what some of the bills and changes are. And we factor that in the pricing over time as we see those trends come in. So if there's a new reg out there and we think it's meaningful, we certainly are going to take an estimate at that and how it plays out in the marketplace.

Alan Schnitzer:

So Brian, we are predominantly a standard lines writer and we will continue to be that for the foreseeable future. We're not changing any stripes here and we've had substantial E&S capability for a very long time. So, for a long time a lot of our National Property business has been written on E&S paper. We've got our Northfield E&S business. We've got our Lloyd's business, some of what we do, in our Bond & Specialty business is written on E&S paper. So it's been a capability that we've had for a long time. And there have been ebbs and flows of business in and out of E&S for a long time. And so, part of this is what's been flowing into it and our ability to capture it. In addition, as we've seen an attractive E&S opportunity, we've leaned into it a little bit. So think what we've done with Fidelis and our acquisition of Corvus, and those have been contributors too. So this isn't a changing of strides by any stretch of the imagination, but there's an opportunity out there and we're participating in it at very attractive margins.

Alan Schnitzer:

Thank you.

Meyer Shields:

Great, thanks and good morning. I guess first question, I'm not sure who this is best sent to, but does the Supreme Court overturning the Chevron doctrine, how does that impact exposure for various casualty lines?

Meyer Shields:

Okay, fair enough. The second question, I guess, this is for Michael. When you look at the sort of potential outcomes for non-catastrophe weather and catastrophe losses, do you think of those as being inversely related or unrelated?

Gregory Toczydlowski:

I mean, it was a little bit of a factor of force this quarter in Business Insurance. Not huge, but it did have that impact this quarter. And so, when we do think about our weather, obviously, we're managing it as one, but there's a lot of what we would report favorably or unfavorably in small weather that you would see in the catastrophe line of some of our peers.

Operator:

Your next question comes from Mike Zaremski with BMO. Please go ahead.

Alan Schnitzer:

Mike, I think we're going to try very hard not to give outlook on pricing. But I will say that from here, we would expect renewal price change continue to be positive and strong and in particular, driven by casualty. Now, whether that means up a little bit or down a little bit in one line or another. I don't really know. But I would say we expect it to remain relatively strong. There's a lot of uncertainty out there and you've heard from others about their experience in the casualty lines. As we look at the schedule P's, honestly, we expect there to be more of that coming from the industry. When we look at our position relative to the industry position, we would expect there to be more coming from the industry. So I would say positive and strong, particularly driven by casualty.

Alan Schnitzer:

Mike, so thanks for listening. I think the main gist was sort of there was a period of time where underlying underwriting income was a pretty steady level. And it was a long period of time. And that was a period of time when written premium growth was sort of ticking around low single digits for a fair amount of time. And then when we started to accelerate the rate of top line growth again around 2016, and did it at consistent margins. The point was, that just translated into a much bigger base of pretty reliable underlying underwriting income. You can't quite go so far as to say it's just going to come in like the tide, but you look at the last five years where we -- before 2020, we had never reached $2 billion in after-tax underlying underwriting income. We crossed $2 billion in 2020 and stayed there. Then we crossed $3 billion in 2023. And in the first half of the year, we're up 30-something percent compared to that. So it was -- I sometimes think that people don't think of us as having grown, but really the underlying earnings power of the franchise is just in a completely different ballpark than it was five or six years ago.

Meyer Shields:

Thank you.

Unidentified Analyst:

Great, thank you. Just maybe on workers comp a little bit. Obviously, California's benchmark rate decreased by 2%. As we think about more and more people go back to work, cost of medical inflation going up, can you maybe talk about the dynamics between your pricing, your severity as well as your frequency and how we should think about the $300 million relief this quarter and then also just the overall reserving position for the book on workers comp.

Unidentified Analyst:

Yes, sorry. Maybe it got cut off. I'm just trying to get a better understanding of, given where the rates are, given where medical cost inflations are going, which is increased, right? And given that frequency, or at least from the fact that more and more people are going back to the office, should we expect frequency to go up? Should we expect severity to go up from here? How do you think about after you take the $300 million of workers' comp reserve release this quarter, how should we think about just the ongoing reserve position of that book? That's where I'm trying to get to.

Unidentified Analyst:

Okay got it. If I can just sneak into the last one. We've all around that New Jersey homeowner price. I know that pricing was up significantly. Just curious as to what the rationale about the New Jersey's homeowner pricing increase, if there is any.

Unidentified Analyst:

Yes, sir.

Unidentified Analyst:

Really appreciate that. Thank you very much.

Operator:

And that concludes our question-and-answer session. I will now turn the conference back over to Ms. Abbe Goldstein for closing comments.

Operator:

And this concludes today's conference call. Thank you for your participation, and you may now disconnect.

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.

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.

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.

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.

Operator:

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

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.

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?

David Motemaden:

Great. Thank you.

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.

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?

Dan Frey:

No, you got it all.

Dan Frey:

Thank you.

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?

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?

Elyse Greenspan:

Thank you.

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?

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.

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.

Operator:

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

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.

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.

Ryan Tunis:

Thank you.

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?

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.

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.

Meyers Shields:

Okay. That's very helpful. Thank you so much.

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?

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.

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.

Operator:

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

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.

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?

Michael Phillips:

Okay. Thank you very much.

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 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.

Michael Ward:

Thank you.

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.

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.

Robert Cox:

Thank you.

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?

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?

Paul Newsome:

Thank you. That helps always much appreciated.

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:

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 19, 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.

Alan Schnitzer:

Thank you, Abbe. Good morning, everyone, and thank you for joining us today. We are very pleased to report exceptional top and bottom line results for the quarter. Core income earnings per share and return on equity were all record highs, driven by both underwriting and investment results. Our underwriting gains were broad-based in each of our three segments underlying underwriting income was higher and prior year development was favorable. Catastrophe losses were also light. Record underlying underwriting income resulted from net earned premiums of $10 billion, up more than 13% over the prior year quarter and an underlying combined ratio, which improved 5.5 points to a record 85.9%. Looking at our two commercial segments together. The aggregate BI/BSI underlying combined ratio was an excellent 85.9% for the quarter. The underlying combined ratio in personal insurance was coincidentally also 85.9%, an improvement of more than 10 points year-over-year. In addition, we are pleased to have delivered full year core income of $3.1 billion, generating core return on equity of 11.5%. Notwithstanding elevated industry wide catastrophe losses earlier in the year and a personal lines operating environment that while improving was difficult during the year. Turning to investments. Our high quality investment portfolio continued to perform well, generating after tax net investment income of $645 million for the quarter and $2.4 billion for the year, driven by strong and reliable returns from our growing fixed income portfolio. Our operating results together with our strong balance sheet enabled us to grow adjusted book value per share by 8% during the year, after making important investments in our business and returning nearly $2 billion of excess capital to shareholders through dividends and share repurchases. Turning to the topline. We grew net written premiums by 13% to $10 billion in the quarter. For the year, we grew net written premiums by 14% to more than $40 billion. All three segments contributed to our topline success. In Business Insurance, we grew net written premiums in the quarter by 14% to more than $5 billion. Renewal premium change remained high at 11.8%. Our retention also remained high at 87%. The combination of strong pricing and retention reflects deliberate execution on our part and a disciplined marketplace. The segment generated $672 million of new business in the quarter, which is a $118 million or about 20% higher than in the prior year quarter. In Bond & Specialty Insurance, net written premiums increased by 7% to $989 million, driven by excellent production in our surety business, where net written premiums were up 9%. Production was also strong in our management liability business. Given the attractive returns, we are very pleased with the strong production results in both of our commercial business segments. In Personal Insurance, top line growth of 13% was driven by higher pricing. Renewal premium change was 21.2% in home and 16.7% in our auto business. Renewal premium change alone contributed more than $2 billion of written premium in this segment over the past year. With another strong production -- with another year of strong production in each of our segments, we feel very well positioned for the new year. You'll hear more shortly from Greg, Jeff and Michael about our segment results. Before I turn the call over to Dan, I'd like to take a minute and put our 2023 results into an overtime context with an update to some data we shared previously. A half dozen or so years ago, we laid out a focused innovation strategy, ensure that if we were successful in this execution, we would expect to grow our business at attractive returns. A reflection of our belief that any strategy to achieve industry-leading returns over time requires a strategy to grow over time. The data on Slide 19 of the webcast presentation show the success we've achieved. Starting at the top left corner. In terms of the top line, we've grown net written premiums at a compound annual rate of 7% over the past seven years, that's 2.5 times our rate of growth from 2012 to 2016. The growth rate in each of the past two years was double-digits, the result of a deliberate and tailored strategy, stronger pricing where we need it and a combination of pricing and unit growth where we like the opportunity. In Business Insurance, we've added more than $4 billion to our top line over the past two years. The investments we've made in capabilities to enhance the franchise value that we offer to our customers and distribution partners have contributed to strong retentions and growth in new business. In Bond & Specialty, we've increased net written premiums over that period by about $0.5 billion or 14%. More than half of that growth has come from a very profitable surety business, where our market leading position has enabled us to benefit from increased demand for bonds with higher contract values and projects resulting from the Federal Infrastructure and Jobs Act and other federal programs. Across both of our commercial segments, since 2021, we have about doubled our E&S writings to around $2.5 billion. That includes organic growth from the E&S business we write in National Property, our North field business and our Lloyd's business, as well as the impact of more recent strategic efforts, which include our relationships with Fidelis and Corvus. The margins in our E&S business are quite attractive. In Personal Insurance, where margins have not been at target levels in recent periods. Net written premium growth of $3.4 billion over the past two years has been almost entirely a result of price increases. The PI team has done an excellent job of threading the needle, maintaining a strong customer base while achieving meaningful pricing gains. They've also done a great job with private product management. Our advanced peril-by-peril Quantum Auto 2.0 offering now represents more than 60% of the domestic property portfolio. And adoption of our telematics product and teledrive among new customers has been strong. With pricing gains and enhanced product sophistication, the book should contribute to our earnings power going forward as we move to our target returns. Also important is that across all three segments, we've grown mostly in products, classes of business and geographies and through distribution partners that we know well, that gives us a lot of confidence in the business we're adding to the books. Moving to the right, you can see that while we've meaningfully increased our rate of growth, we've maintained very strong and consistent underlying profitability. That demonstrates that we're not growing by underpricing the business or compromising our underwriting discipline. We've grown by investing in the products, services and experiences that our customers want to buy and our distribution partners want to sell. We've also grown through a lot of great hustle and hard work on the part of our outstanding field organization. One of the clear strategic objectives of our innovation strategy has been to optimize productivity and efficiency. Moving to the top right of the slide, you can see that over the last seven years, we've reduced our expense ratio by 3.6 points to just over 28% for 2023, which is more than a 10% reduction relative to our 2012 to 2016 expense ratio of around 32%. Enhanced operating leverage gives us the flexibility to let the benefit fall to the bottom line and/or invest further in our strategic priorities. Case in point, as you can see on Slide 21, since 2017, we have 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 a seven year period, we simultaneously and meaningfully increased our technology spend, improve the strategic mix of that spend, and lowered our expense ratio. The upshot of what we've accomplished on the top half of Slide 19 is what you see on the bottom half. On the bottom left, you can see that we've increased underlying underwriting income significantly. From 2012 to 2019, underlying underwriting income averaged $1.3 billion. In 2020, we crossed the $2 billion mark and 2023 marks the first time that we've exceeded $3 billion. We've taken our underlying underwriting income to a meaningfully higher level. We've also significantly increased our cash flow from operations to more than $7.5 billion in 2023. The fourth consecutive year it's been more than $6 billion and more than double our average cash flow from operations in the earlier part of the last decade. Cash flow isn't a metric that we or our industry talk a lot about, but it's important. It's what gives us the ability to make important investments in our business, return excess capital to shareholders and grow the investment portfolio. We've grown our investment portfolio significantly to nearly $93 billion. As we continue to reinvest our fixed income portfolio at higher rates, this is a highly reliable lever of earnings and value creation. To sum it up through a well-executed strategy, we've more than doubled our rate of growth, sustained strong underlying underwriting margins and meaningfully lowered our expense ratio. That has resulted in record levels of underlying underwriting income, cash flow and invested assets. Ultimately, of course, one number that brings everything together is adjusted book value per share. On Slide 20, you can see that we have steadily increased adjusted book value per share each year since 2006 at a compound annual rate of 7.5%. The effective management of our capital complements that result. We've increased our capital base to support the profitable growth of our business. At the same time, we've been disciplined about returning excess capital to shareholders. Over this period, we've increased our dividend at a compound annual rate of more than 8% and returned more than $40 billion to our shareholders through share repurchases at an average price of about $74 per share. These results, together with our track record of strong returns and low volatility demonstrate the strength of our business and the success of our overtime strategy. Looking ahead, we're very confident about how we're positioned for 2024 and beyond. The fundamentals across our business are in excellent shape. We're confident that we're focused on the right strategic priorities and that with demonstrated success in execution, there's plenty more opportunity ahead of us. And with that, I'm pleased to turn the call over to Dan.

Gregory Toczydlowski:

Thanks, Dan. Business Insurance had another strong quarter, rounding on a terrific year in terms of financial results, execution in the marketplace and progress on our strategic initiatives. Last year at this time, I indicated that we were firing on all cylinders, and that certainly remains the case today. Segment income for the quarter was $957 million, our highest quarter ever and up well over $200 million from the prior year quarter, driven by higher underlying underwriting income and net investment income as well as lower catastrophes. The all-in combined ratio of 86.5% was a great result, and we're once again particularly pleased with our exceptional underlying combined ratio of 86.8% and an all-time best result. The underlying loss ratio improved by almost 2.5 points from the prior year quarter, with the drivers of the improvement, including the benefit of earned pricing a mix shift to the property line and an impact from non-CAT weather that was modestly favorable to both the prior year and our expectations. The expense ratio remained excellent at 28.8%. Net written premiums for the quarter were up 14% from the prior year to a fourth quarter record of $5 billion, benefiting from high retention, strong renewal premium change and increase in new business levels. As Alan mentioned, given the attractive margins in this segment, we're very pleased with this growth. Turning to domestic production for the quarter. Renewal premium change was once again historically high at 11.8%, with renewal rate change of 7.4% and continued strong growth and exposure. Renewal rate change increased from the third quarter in select and middle market, however, ticked down at the segment level, driven almost entirely by a lower mix of national property written premium in the fourth quarter as compared to the third quarter. Retention remained excellent at 87% and new business of $672 million was the strongest fourth quarter we've ever produced. We're thrilled with these production results and our field superior execution in the marketplace. In terms of pricing, we're pleased to be able to sustain strong levels of renewal premium change to address the persistent environmental headwinds. As for renewal rate change, during the quarter, we achieved meaningful renewal rate increases in all lines other than workers' comp. The property, umbrella and auto lines led the way. Renewal rate change in each of the casualty lines was comparable or better than the third quarter. 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. As for the individual businesses, in select, renewal premium change remained strong at 11.9%, up more than 1.5 point (ph) from the third quarter driven by renewal rate change, which increased to 4.1% for the quarter. Even with strong pricing, retention remained very strong at 85%. New business was up $49 million from the prior year quarter driven in large part by the continued success of our BOP 2.0 product. In middle market, renewal premium change of 10.4% and retention of 90% remained historically strong. New business of $348 million was an all-time best fourth quarter result. As we close out 2023, let me provide a little color on full year results before turning the call over to Jeff. Segment income was nearly $2.6 billion, an exceptional result. The underlying combined ratio of 88.9%, top line of $20.4 billion renewal premium change, retention and new business premiums were all record results. These results are a direct reflection of our successful execution of our thoughtful and deliberate strategies. And while delivering these financial and production results, we've also continued to invest in strategic capabilities that will enhance our many competitive advantages. For example, during the year, we continued to advance our data and analytics capabilities by leveraging evolving technologies, including AI, and new data sources to help us manage the portfolio and equip our frontline underwriters with data and insights to better enable our risk selection, underwriting and pricing. In addition, we continued to advance our already state-of-the-art product and service capabilities by continuing to roll out our BOP 2.0 product, which is now live in all but a couple of states, as well as our new commercial auto product, which is now live in 14 states. Both products deliver industry-leading segmentation and user experiences. In addition, we continue to make progress on developing other industry leading user experience capabilities to make it easier and more efficient for our distribution partners and customers to do business with us. In particular, in our middle market business, we advanced our capabilities around digitizing the underwriting transaction for our agents and brokers. In our Small Commercial business, we continued to roll out our new front end rate quote and issue interface platform to make it faster and easier for our agents to write business with us, while maintaining all the underwriting discipline and specialization behind the scenes. And finally, we continued to improve our operating leverage through our relentless focus on productivity and efficiency. We're proud of these extraordinary results in the best-in-class team that produce them. With that, I'll turn the call over to Jeff.

Michael Klein:

Thanks, Jeff, and good morning, everyone. I'm pleased to share that Personal Insurance generated $520 million of fourth quarter segment income, strong results and a significant improvement compared to the prior year quarter, due to higher underlying underwriting income and lower catastrophe losses. The underlying combined ratio of 85.9% improved over 10 points compared to the prior year quarter, reflecting improvements in both automobile and homeowners and other. Net written premiums grew 13%, driven by continued elevated levels of renewal premium change in both auto and home bringing full year net written premiums to a record of nearly $16 billion. In automobile, the fourth quarter combined ratio was 103.6%, the underlying combined ratio of 102.7% improved nearly 8 points compared to the prior year quarter. This improvement was driven by the benefit of higher earned pricing. To a lesser extent, it also benefited from the year-over-year impact of a modest favorable re-estimation of prior quarters in the current year compared to a modest unfavorable re-estimation in the prior year quarter. In Homeowners and Other, the fourth quarter combined ratio of 70.8% improved by over 28 points, reflecting catastrophe losses that were favorable to both the prior year quarter and our expectations and an improved underlying combined ratio. The underlying combined ratio improved 12.5 points, primarily due to non-catastrophe weather-related losses that were favorable to both the prior year and our expectations and the impact of earned pricing. Turning to production. Our results demonstrate our continued disciplined execution of rate and non-rate actions to improve profitability and manage growth. In domestic automobile retention remained consistent. Renewal premium change of 16.7% remains strong and as expected, moderated from the third quarter of 2023 and as the majority of our book reached rate adequacy on a written basis. We expect renewal premium change to remain in the mid-teens through the first half of 2024 as we continue to assess the environment and seek rate on a state-by-state basis as appropriate. We're pleased to note that auto new business increased relative to the prior year quarter, as we tempered our non-rate actions in states where we've achieved written rate adequacy. We will continue to evaluate our non-rate measures as more states reach adequacy throughout 2024. In Homeowners and Other, retention remained consistent even as renewal premium change reached a record level at 21.2%, primarily driven by higher renewal rate change. As we noted last quarter, we expect homeowners' renewal premium change to moderate to low double-digits in 2024. We will continue to see great increases in response to elevated loss levels. But at the same time, our automatic increase in limit factors will return to more normal levels, reflecting the progress we've made on aligning insured values with replacement costs. Our continued efforts to manage new business flow and thoughtfully deploy capacity in the face of market dislocation drove the year-over-year decline in homeowners new business and policies enforced during the quarter. We anticipate this trend will continue as we take further actions to improve profitability and manage growth in property. In 2023, we made notable progress on improving the underlying fundamentals of our business and are moving towards our goal of delivering target returns. While the environment remains dynamic, we're confident we're on a path to generating leading returns in Personal Insurance and growing profitably over time. Now I'll turn the call back over to Abbe.

Operator:

[Operator Instructions]. Your first question comes from the line of David Motemaden from Evercore ISI. Please go ahead. Your line is open.

Dan Frey:

Hey, David. It's Dan. So we're not going to put numbers on them. But price versus trend has been favorable throughout the last couple of years and was favorable again -- favorable again this quarter. A little bit of a mix shift towards property, as Greg said, and modestly favorable non-CAT weather impact, not huge but worth to mention, but we're not going to put numbers on each of those.

Dan Frey:

Sure, David. It's Dan, again. So not big, big movements this quarter, more of the same, more of what we’ve sort of been talking about the last couple of quarters, which is no surprises in terms of the themes of the things that we’re seeing come through those numbers, but the magnitude has been a little greater than we had allowed for previously, and we’re just looking at the data that comes in every quarter and try to make sure we stay as current with it as we can. And so a modest reaction to keep up with that, but nothing really new.

Greg Peters:

Good morning, everyone. Well, first of all, you had a great fourth quarter, so congratulations. But I wanted to focus on Slide 7, the return on equity slide and you guys have all mapped out really a pretty strong outlook. And I guess, I'm trying to reconcile what is looks to be a very pretty good outlook with the fact that your ROE is running below where I think it should be. I feel like the ROE should be running higher. So maybe, Alan, you can provide some perspectives because I know the ROE is an important factor that you guys look at.

Alan Schnitzer:

Greg, it's Alan. The other thing I would add to that is, I won't tell you would do, but one of the things I do every quarter is, is try to take a stab at normalizing these things. And so eliminate prior year development and put in for CATs, whatever you think is a normalized CAT number and then you get a different perspective.

Alan Schnitzer:

Let me start with that, and then I'll see what observations Dan has on that. So I think we've said for a very long time, our first objective for every dollar of capital we generate is to invest it back in the business when we think we can do that and achieve our objectives and contribute to shareholder value. But we think we've got a long track record that demonstrates our discipline with shareholders' capital. And so we're going to invest the money back in the business when we can and that could be keeping capital on the balance sheet to support profitable growth. It could be buying things like Corvus. It could be investing in technology or people doing the things that we think we can do that are accretive to our objectives. And when we can't do that, we're going to give the dollars back. So it's a long-winded way of saying no change at all in our capital management plans (ph). Dan, you want to add?

Operator:

Your next question comes from the line of Elyse Greenspan from Wells Fargo. Please go ahead. Your line is open.

Dan Frey:

Sure, Elyse. It's Dan. So really not going to put a very fine number on it. Keep in mind now that Fidelis is now a standalone public company. They haven't reported results yet. I don't think it would be appropriate for us to give an outlook of what we felt about their profitability. But it was a modest help in 2023, it will be a modest help again in 2024, there'll be a little bigger base of earned premium as we'll have two years' worth of written impacting 2024. So worth calling out as a modest benefit, but not a big number, and I really don't think it would be appropriate for us to try to put a finer number on it than that.

Michael Klein:

Elyse, I don't think we'll get more specific than the majority, but you can think of the non-rate restrictions as tracking very closely with where we see written adequacy state-by-state. So the majority of the premium is in states where we have relaxed some of those or tempered some of those non-rate actions because the majority of premium is in states where we’ve got target returns on a written basis. And again, as I indicated in the – in my prepared remarks, we’ll continue to follow that path as more states get adequate will temper actions in those states as they reach adequacy.

Ryan Tunis:

Hey. Thanks. Good morning. I guess my question is just looking at the rate slides. We saw an acceleration of pricing in middle market in Select obviously, a decelerated headline. So I'm guessing that means there's deceleration in national property. Could you just, I guess, talk a little bit about the relative pricing dynamics in those three markets?

Alan Schnitzer:

But make no mistake, Ryan, the overall rate change and renewal price change in the property line continues to be very strong.

Dan Frey:

No, Ryan. It's Dan. Like, if we have an unusual item in the quarter that's sort of non-run rate, we'll usually try and call it out for you, including some kind of year-to-date catch-up, Michael referred to it in PI auto, but you didn't hear Greg talk about anything significant in BI because there wasn't really anything significant in BI. So we do – what we always do, right, go through all the lines there’s puts and takes across every line, looking at frequency and severity. But on the whole, no big change in our view of blended trend.

Michael Zaremski:

Hey. Thanks. Good morning. Happy Friday. First question is maybe looking for a little bit more color on some of the pleasantly surprising commentary about the general liability and umbrella returns still being very good despite but someone else had pointed out, was five of the last seven quarters adding to reserves. So just curious, is there any more -- can you elaborate on that? Is that maybe you're taking into account the -- you don't typically hear that. Maybe it's the investment income that's helping or its sold as part of a package. And so the rest of the products are running at better returns or anything you could add to that? Thanks.

Alan Schnitzer:

Another way to think about it, Mike, might be that you think about it in terms of rate adequacy and you might have an attractive rate adequacy, you might make an adjustment to it. It might be to one degree or another, slightly less rate adequate, nonetheless, you like the rate adequacy. So that's -- it's in that context, we say we continue to like to returns in those lines.

Alan Schnitzer:

Yeah. I wouldn't say it's just growth. It's a combination of profitable growth is what I would say about that. And as I've said, that I mean that's what gives us the flexibility to invest in all the important things we invest in, return capital to shareholders and grow the investment portfolio. So without strong free cash flow, we couldn't do those three things, and those are key to our operating model.

Brian Meredith:

Yes. Thanks. First question, if I look at the underlying combined ratio on your Business Insurance it's, I believe, the best it's ever been since the St. Paul merger and public prior to that just on the numbers. I guess can you kind of talk a little bit about -- is that a sustainable kind of underlying combined ratio, underlying margin? Is there more improvement potentially can go there? At what point do you kind of say, okay, the margins we're seeing on the business are about as good as we should have and maybe more focus on growth and more expenses and other things. How do you balance that?

Gregory Toczydlowski:

Brian, this is Greg. Just one follow-up. I would note you said you could grow the business. We are growing the business 16% on a full year basis and have strong new business. So there's a number of items that we watch and we compete in the marketplace, but growth is one of them through the lens of adequacy of our products.

Brian Meredith:

Makes sense. Thanks. And then, Michael, I'm just curious, back on personal auto. When you look at your business, the majority right now being all on a written basis, what are you kind of thinking from a loss cost in place in perspective? And is that maybe why you're not stepping on growth maybe a little bit quicker right now because of uncertainty as far as the claim severity?

Operator:

Your next question comes from the line of Meyer Shields from KBW. Please go ahead. Your line is open.

Dan Frey:

Hey, Meyer. It's Dan. So sure, a couple of comments on that. We do see some paid medical severity. That's now higher than what we saw in the very benign pandemic levels. On the flip side of that, frequency has been pretty favorable. And as you know, we've shared a number of times previously, our view in reserving and in pricing still assumes that there's going to be a return to that higher longer-term trend. But when we factor all that in, in the most recent data that we're looking at, loss costs still coming in better than we expected, and that's why you get another quarter of favorable PYD.

Gregory Toczydlowski:

Hey, Meyer. This is Greg. We have a couple of dynamics going on between those two businesses. In Select, we have a higher exposure in workers' comp E&CMP (ph). And for workers' comp relative to middle market, I think that it's just a different cohort of customers. So in a wage increase environment on a smaller customer base, you get bigger deltas and so that's what's driving the difference in workers' comp. CMP, similar to what Michael said, that’s our business owner product with a heavy property coverage that comes with it in. So we do have to think of it as an automatic inflationary level underneath the CMP product, so you get a little more exposure to growth there also. So those are the drivers underneath the difference between select and middle.

Alex Scott:

Hi. Good morning. First one I had is on Business Insurance. And I was just interested in hearing a little bit about the competitive dynamic in the market. I mean I look at the returns, how the underlying loss ratios are and so forth and the ROEs that suggests and yet price accelerating and in some areas, your business retention is actually hitting pretty darn high levels. So it also gets a lot of discipline in the marketplace. And just wanted to get your perspective on what is it in the environment that's causing everyone to remain so disciplined despite good underwriting and the additional contribution to net investment income.

Gregory Toczydlowski:

No, I think that's spot on.

Michael Klein:

Yeah. Sure, Alex. It's Michael. Maybe just give a couple more comments relative to the comment I made earlier about moderating trends. You're right to point to sort of vehicle severity and used car prices, and we certainly see moderation there in the level of increase year-on-year. And in fact, when you look at the dynamics underneath the prior period adjustments that I described in the script, those really are driven by the physical damage coverages. Late last year, we were adding to our estimates for vehicle losses because physical damage coverages were rising more than we thought they were going to. And this year, we actually took down some of our estimates for vehicle severity on prior periods because they've been a bit more favorable than we anticipated. Broadly speaking, severity in auto is running mid to high0single digits, think closer to mid in the vehicle severity, think closer to high and bodily injury. And so that’s sort of where trends are running today. We don’t have a dramatic improvement in those trends sort of factored into our comments about when we’re going to get to written adequacy state by state or those types of things, but that’s a little bit more detail on sort of where things are running today. The other thing that we’ve mentioned a couple of quarters throughout the year is we are also monitoring the mix of losses between vehicle loss and losses that have third-party property damage and bodily injury. We’ve seen a bit of a mix shift towards more bodily injury claims, which is one of the things that has us keeping our severity trend estimates at that sort of elevated level.

Paul Newsome:

I want to follow directly on that, maybe similar thoughts about the home part of the business, Michael?

Paul Newsome:

Yes, please.

Paul Newsome:

I'm just curious for some time, I think we've seen a little bit of a divergence between commercial auto and personal lines auto. Has that continued to be the case or are we seeing pretty similar claim trends in across sort of anything that drives?

Michael Klein:

Limits profile...

Michael Klein:

Limits profile were different. Mix of vehicle versus bodily injury is different between Business Insurance and Personal Insurance, right, Greg?

Operator:

We have time for one more question. And that question comes from the line of Andrew Kligerman from TD Cowen. Please go ahead. Your line is open.

Jeffrey Klenk:

Yeah, Andrew. This is Jeff Klink. So relative to D&O and cyber, public D&O pricing continues to be, I'd say, more pressured relative to the other liability lines. I would remind you that for public D&O and our management liability book, we're relatively underweight there, that's not been a major area of focus for us. On the cyber side, we continue to see some modest negative pricing there, I think, given some broader market perception on the returns in the line. Again, we feel really good about our execution there. We closely monitor our return profiles and are comfortable with our execution, both for those lines of business and management liability problem.

Dan Frey:

Hey, Andrew. It's Dan. So I'll start and disappoint you on the work comp severity. So we're not going to put a number on it. But again, it's been benign. We've seen some of those numbers move up, but your starting point matters. So what you assumed medical severity was going to be inside of your overall loss pick. Pick really matters in terms of whether a move-up is problematic for you or not. And again, we saw more favorable reserve development this quarter. And then in terms of pricing, and I'll turn it to Greg. I think the returns in comp have continued to be good. So pure rate has continued to be slightly negative for us. We are getting strong exposure increases, Greg referenced in the select comments a few minutes ago, that's the poster child for where a lot of that exposure behaves like rate because it's the same worker just earning a higher wage and we're getting paid a higher price for it. The rating agencies, the bureaus are looking at their data on a lagging basis and until returns come under some pressure in work comp, we wouldn't be surprised to see this environment stay pretty steady.

Operator:

Thank you. I will now turn the conference over to Ms. Abbe Goldstein for closing remarks.

Operator:

This concludes today's conference call. Thank you for your participation, and you may now disconnect.

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 October 18, 2023. 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.

Alan Schnitzer:

Thank you Abbe. Good morning everyone and thank you for joining us today. Core income of $454 million for the quarter benefited from very strong underlying underwriting results and net investment income, but was also impacted by elevated catastrophe losses and net unfavorable prior year reserve developments. Mike will provide more context on the catastrophe losses. The unfavorable prior year reserve development was driven by the results of our annual asbestos review in our run-off 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 $868 million pre-tax was up more than 40% over the prior year quarter, driven by record net earned premiums of $9.7 billion and a consolidated underlying combined ratio which improved almost two points to an excellent 90.6%. The underlying combined ratios in our commercial segments remained excellent. Our business insurance segment once again delivered very strong results with an underlying combined ratio of 89.7%. The underlying combined ratio on our bond and specialty business was also excellent at 80.7%. 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 personal insurance segment, the underlying combined ratio improved more than five points to 94.2% as the strong written rate from prior quarters is earning in. Our underlying results in personal insurance are improving and heading in the right direction. Turning to investments, our high quality investment portfolio continued to perform extremely well, generating after-tax net investment income of $640 million, reflecting strong and reliable returns from our growing fixed income portfolio and solid returns from our non-fixed income portfolio. 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 $1.3 billion or 14% to a record $10.5 billion. In business insurance, we grew net written premiums by 16% to $5.1 billion. Renewal premium change in the segment was very strong at 12.9%, driven by renewal rate change which accelerated year-over-year and sequentially to 7.9%. Renewal rate change was higher sequentially in every line other than workers’ comp, where overall renewal premium change remains positive and appropriate given return to the line. 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 bond and specialty insurance, we grew net written premiums to a record $1 billion, achieved 91% retention of our high quality management liability business, and grew net written premiums in our industry-leading surety business by 13%. Given the attractive returns, we are very pleased with the strong production results in both of our commercial business segments. In personal insurance, top line growth of 14% was driven by higher pricing. Renewal premium change was 19.4% in our home owners and others business and increased to a record high 18.2% in our auto business. Another quarter of strong production across the board positions us well for the rest of the year and into 2024. We’ll hear more shortly from Greg, Jeff and Michael about our segment results. 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 business insurance segment, written margins are expanding. Pricing has been strong and the components of core goods inflation that impact our loss costs are moderating. Medical inflation in particular remains benign; nonetheless, given the duration of relevant liabilities, we continue to incorporate medical inflation in our loss costs based on the higher longer term trends. In terms of the top line in business insurance, we’re pleased that economic output and consumption so far remain robust given our leading workers’ compensation business, we benefit in particular from the near 50-year low in unemployment, the prime age labor participation rate, which is at its highest level since 2007, and ongoing wage inflation, which contributes to premium growth and margins. As a result of strong pricing in recent years and higher fixed income NII, returns to the segment are currently attractive; nonetheless, given the uncertainty generally in terms of weather volatility, economic and social inflation, a 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 over time return objectives. Turning to our industry-leading bond and specialty business, we just reached a milestone $1 billion in net written premiums and returns are terrific. As you’ve heard, results in our personal insurance business are headed in the right direction. Earned margins are improving and additional price increases will earn-in from here. We’re very pleased with our targeted marketplace execution at the same time inflationary pressures are moderating. 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 $19 billion, or about 25% to more than $90 billion. Ninety-three percent of the portfolio is allocated to fixed income. As we look ahead to 2024, we expect our after-tax fixed income NII will be more than $2.6 billion. To ensure that our competitive advantages continue to distinguish us and fuel our performance, we will continue to invest in our ambitious and focused innovation priorities. We’re spending more than $1.5 billion this year on technology inside an excellent expense ratio and with a higher proportion allocated to strategic technology investments. We’re confident that we’re working on the right priorities, executing effectively, and that we’ll see the benefits play out in growth and attractive returns going forward. 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 the United States and that we’re positioned to support each other’s strategic and marketplace priorities. We’re committed to being their best partner and to offering the products and services that best serve our mutual customers. 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 of fulfilling our mission of creating shareholder value and our purpose of taking care of the people we’re privileged to serve. With that, I’m pleased to turn the call over to Dan.

Greg Toczydlowski:

Thanks Dan. Segment income for the third quarter was $468 million, with strong underlying underwriting and investment income, as well as favorable prior year development in our ongoing book offset by reserve charges in our run-off book mostly related to asbestos. We’re particularly pleased with our exceptional underlying combined ratio of 89.7% for the quarter, which was a 30 basis point improvement year-over-year and an all-time best third quarter result. 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 $5.1 billion driven by very strong renewal premium change of 12.9%, historically high retention of 87%, and new business of $695 million. Underneath RPC, as you heard from Alan, renewal rate change accelerated sequentially from the second quarter to 7.9% with all lines other than workers’ comp being higher. We’re thrilled with these production results and our fields’ continued superior execution in the marketplace, and given our high quality book as well as several years of meaningful price increases and the 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 remains strong at 10.3%, while retention of 85% was up two points from the prior year quarter. New business was up $46 million from the prior year quarter driven in large part by the continued success of our BOP 2.0 product. We’re also encouraged with the early performance of our new state-of-the-art commercial auto product, which has been rolled out in 12 states. In middle markets, renewal premium change remained very strong at 10.6%, while retention remained excellent at 89%. New business was a strong $352 million. We’re pleased with the quality of the submission flow from our distribution partners during the quarter and our responsiveness in quoting and closing accounts that aligned with our appetite. As always, we remain vigilant around risk selection, underwriting and pricing. To sum up, business insurance had another terrific quarter. We’re pleased with our execution in driving strong financial results while continuing to invest in the business for long term profitable growth. With that, I’ll turn the call over to Jeff.

Michael Klein:

Thanks Jeff, and good morning everyone. In personal insurance, the third quarter segment loss of $193 million was significantly impacted by catastrophe losses. We experienced elevated losses from weather activity specifically related to wind and hail events. This was another active quarter for severe convective storms across the U.S. There were 19 designated PCS events specifically related to wind, hail and tornado activity in the quarter, nearly twice the 10-year average and the highest number for a third quarter in more than a decade. 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 home owners. Net written premiums for the quarter grew 14%, driven by high teens renewal premium change in domestic automobile and home owners and 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% 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 home owners and 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, home owners and 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. We expect renewal premium change in home owners 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 limits factors return 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 in 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 turn the call back over to Abbe.

Operator:

[Operator instructions] Your first question comes from the line of Greg Peters from Raymond James. Please go ahead.

Alan Schnitzer:

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 the profile of loss activity this past quarter, so we continue to have a pretty meaningful gap between where renewal premium change is and where loss trends are, and so I think that gives you a sense. It’s why we are--it’s why we are--it’s easy enough in my prepared remarks to share that written margins are expanding.

Operator:

Your next question comes from the line of David Motemaden from Evercore ISI. Please go ahead.

Dan Frey:

Hey 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 and that’s earning its way through, so there is still definitely a benefit from earned pricing. In any given quarter, you’ve 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 the next. There were some good guys and some bad guys, nothing particularly significant in that result, just about offset the benefit from earned price, and again all inside of an underlying combined ratio that we’re really happy with at sub-90.

Elyse Greenspan:

Hi, thanks. Good morning. I was hoping to get more color on the reserve development you guys called out in your ongoing businesses within business insurance, if you could tell us what the workers’ comp favorability, and then I think you called out commercial auto developed adversely. Could we get the numbers there, and then are there any other lines in your ongoing business that moved materially in the quarter?

Elyse Greenspan:

And then you guys--you know, you’ve called out higher cats in the third quarter, as well as other quarters this year. As you guys contemplating making any changes to your reinsurance program heading into 2024, or how do you think changes you made over the past year could have led to higher cats this year?

Operator:

Your next question comes from the line of Ryan Tunis from Autonomous Research. Please go ahead.

Michael Klein:

Sure Ryan, thanks for the question. Just unpacking it for a second, right, so inside RPC in home owners, there’s really two primary components

Greg Toczydlowski:

Good morning Ryan, this is Greg. I think we start every month with retaining our high quality book of business, so it’s been very much an intentional strategy of ours to make sure that we’re being thoughtful on our terms and conditions, our pricing, and all the changes that we’re making to continuously improve margins, but given the quality of that book, it’s not a surprise for us. It also is an indicator of just how rational the marketplace is right now and the need for improved margins across the entire industry, based on all those headwinds that Alan talked about. We’re not surprised by it, we’re very pleased with it, and we’re very focused on it.

Jimmy Bhullar:

Hi, good morning. First, just had a question on commercial auto, and if you could just give us a little bit more insight into what’s driving the adverse development there. Some of your peers have seen that as well, and I think there is some concern that this could be the beginning of a trend, given what’s gone on in personal auto over the past two years or so.

Jimmy Bhullar:

And that’s just a function of repairs taking longer, or something else?

Jimmy Bhullar:

Then in personal auto, where are you in terms of rate adequacy on a written basis, and is--your discount has been sort of flattish, are your competitors being fairly rational and you’re seeing price increases across the board or are there some companies that are not adjusting due to higher loss trend?

Operator:

Your next question comes from the line of Brian Meredith from UBS Financial. Please go ahead.

Dan Frey:

Hey Brian, it’s Dan. I think we’re not going to put a number on it. It’s not a significant deal. The only point Jeff was trying to make was sort of when you do the comparison year-over-year, there was some favorable CYPQ, which we called out last year in the third quarter. There was some favorable CYPQ this year as well, just not as much, so the year-over-year is unfavorable given less of a good guy.

Alan Schnitzer:

Yes Brian, we watch for that all the time, and as you can see in the webcast, in the blue lines we give you, you can see it’s been very stable across the select business and the middle market, and obviously those add to the total BI business. It really is a function of nominal GDP - you know, economic growth and overall inflation levels, and clearly we’ve seen the consumer-type inflation correct somewhat from the peak of mid-2022. Where we’re really encouraged, when we also look at our audit premium which is more of a going backwards view in our core middle market business, we continue to have real strong audit premium also, so both backwards and forward, we’re encouraged with how exposure is playing out in the business and we’ll continue to report out what we see with that line.

Michael Zaremski:

Hey, great. Good morning, guys. First on business insurance segment, heard loud and clear the comments about written margins expanding. Does the definition of written margins include reserve changes, because I’m just trying to--you know, when we look at the loss ratio, maybe I guess ex-cat, we clearly see that [indiscernible] that reserve releases or additions or whatever, right, are worse year-over-year, and clearly margins are good. I’m just trying to--you know, does written margins mean--are you looking kind of forward-looking or backward-looking? Any color there? Thanks.

Michael Zaremski:

Okay, understood, and just a quick follow-up, then. Have you changed your view of forward-looking loss after this quarter, and you also called out the topping off of the asbestos and environmental--I think you used the word, topping off, but you kind of called out an additional add, and I don’t know if you want to call out specifically what that dollar amount was. Thanks.

Operator:

Your next question comes from the line of Yaron Kinar from Jefferies. Please go ahead.

Greg Toczydlowski:

Yes, good morning Yaron. I think you’re referencing the slight down in the net written premium for the quarter. I would point you to year-to-date - it is just up 2%, so it wasn’t a meaningful change for the particular quarter, and obviously where you’re seeing not the level of net written premium growth on the other product lines that we’re seeing in workers’ comp, is clearly the rate pressure that the entire industry is seeing there. That rate pressure is driven based on the bureau’s loss cost recommendations that continue to put minuses across the industry, and that’s just an indication of the health of the line. We’re the largest workers’ comp writer in the country, and on a calendar year basis we feel terrific about the results of that, and that’s basically what’s driving some of that net written premium change that you mentioned.

Yaron Kinar:

Got it, thank you. Then my second question, also on BI, did you have any CYPQ there, because I did notice that the underlying loss ratio was flat year-over-year. Just given the rate commentary and RPC commentary, I would have thought maybe we’d see a little bit of improvement there.

Operator:

Your next question comes from the line of Paul Newsome from Piper Sandler. Please go ahead.

Dan Frey:

Sure Paul, it’s Dan. I’ll start. I think the second piece of the question, the answer would be yes to the degree that some of what we’ve seen in higher cat losses is the impact of inflation over the last several years, and just the value of those claims going up. So yes, over time more things would fall into what would get designated as, quote-unquote, catastrophes, given the threshold. Other than that, thinking about cats, we’re looking at long term weather trends, medium term weather trends, near term weather trends. We’re putting more weight on nearer term weather trends and, as both Greg and Michael have talked about, trying to react with very strong pricing, changes in terms and conditions, and risk selection where we think it’s appropriate. There is also clearly an uptick in catastrophe activity this year, so last year--I think last quarter, I think Alan maybe gave the statistic that in the 91 days of the quarter, there were 88 days in which there was a PCS event occurring. In the third quarter, there were 92 days in the quarter; on 91 of those 92 days, there was a PCS event occurring, so the increase in catastrophes is the combination of several factors

Dan Frey:

You know, Paul, sometimes we do see that in the quarter, where it’s bucketing, where things will spill over into the cat number that would have otherwise been an underlying. That was not a big factor this quarter. It’s not like there were a bunch of close calls that, because of inflation, spilled over into a cat designation. This was a significantly higher number of severe convective storms for a third quarter that created a bunch of catastrophes, so this was not a definitional bucketing close call issue. That does happen sometimes, but it didn’t happen this quarter.

Michael Ward:

Thanks guys, good morning. I was curious about personal auto. Just wondering if there was an impact from current year reserves on the underlying result, and if you could maybe expand on the frequency and severity trends.

Michael Ward:

Thanks, and then on commercial property, just wondering how should we think about the impact of the growth on PI margins, and if there’s more volatility in non-cat property, might that affect your growth appetite next year?

Michael Klein:

The one thing I’d add to that also is when you look at our property growth, the thrust of that growth really is being driven based on rate and exposure change. Clearly, we’re being active and very selective on the new business front, but when you look at what’s driving the net written premium change, it does start with rate and exposure change.

Operator:

Your next question comes from the line of Meyer Shields from KBW. Please go ahead.

Jeff Klenk:

Yes, absolutely. This is Jeff - thanks Meyer. The question on expenses is we’re definitely making strategic investments to support our future success. I think broadly speaking, I’d give you two buckets

Dan Frey:

Hey Meyer, it’s Dan. You know, comp has been pretty consistently for a number of years a pretty favorable development story, and when it is, it’s across a number of accident years. That’s continued to be the case in 2022 and 2023. We’re really just reacting to--you know, we’ve had this conversation before, you’ve got to be really careful with your assumption around medical cost trend, given the duration of the liability. A quarter goes by, a bunch of claims close, you see what actually happened in terms of severity relative to what you had previously allowed for, and you make an adjustment. We’re really just following the numbers in that regard. We’ve certainly not become any more aggressive in the way we’re reserving for workers’ comp, it’s just the mathematical output of the changes that we’ve seen.

Alex Scott:

Hey, good morning. First one I have for you is on casualty, and specifically I wanted to ask you about some of the comments that have come out of the larger reinsurance companies. I mean, it sounds like they’ve gotten a bit more cautious in their stance on U.S. casualty in general, and I guess the social inflation trends and so forth. Certainly you guys sound like you saw a little bit of that in general liability in commercial lines, but I just wanted to see if you could provide perspective on how big of an issue do you really think that is for the industry at this point, and is there anything unique about your exposure that sort of insulates you, whether it’s the size of business that you tend to write and that kind of thing.

Alex Scott:

Got it, thank you. The follow-up I had is on the auto insurance specifically. You obviously showed a good amount of improvement, which is great to see. How much of that is driven by the severity beginning to calm down, or stabilizing at least? Any color you can provide on those trends, and maybe specifically even repair and what you’re seeing there?

Operator:

Your next question comes from the line of Scott Heleniak from RBC Capital Markets. Please go ahead.

Michael Klein:

Sure Scott, it’s Michael. I’ll share a couple of thoughts. First of all, the idea of regulatory reform in California is positive news. That said, I really don’t think there are enough details available to evaluate. You’ve got a framework that the governor has asked the commissioner to take action on, but the details underneath that framework and how it’s going to be implemented have yet to be defined, and so deciding whether it’s a net positive or not and what actions to take as a result, there just really aren’t enough details yet to evaluate that further. But we certainly are encouraged by the fact that California is considering regulatory reform, and we think it’s long overdue.

Operator:

We have time for one more question. Bob Huang from Morgan Stanley, please go ahead.

Alan Schnitzer:

Bob, good morning, it’s Alan. Thank you for the question. We would be really happy to take this offline with you. We’ve talked really extensively about this over a long period of time, but broadly, the investments that we’re making across the organization fall into three buckets

Alan Schnitzer:

Yes, we’re not going to break out the losses by product line, but it certainly is wrapped in the overall number that we’ve talked about historically.

Alan Schnitzer:

Thank you.

Abbe Goldstein:

Great, thanks everyone. We appreciate you joining us today for our call, and as usual, if there’s any follow-up, please feel free to reach out to Investor Relations. Have a good day.

Operator:

Good morning, ladies and gentlemen. Welcome to the Second Quarter Results Teleconference for Travelers. [Operator Instructions] As a reminder, this conference is being recorded on July 20, 2023. 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.

Alan Schnitzer:

Thank you, Abbe. Good morning, everyone, and thank you for joining us today In the face of an historic cat quarter, our top and bottom line results demonstrate the strength of our franchise and the resilience of our business model. This quarter, we reported strong underlying results and investment returns, as well as, net favorable prior-year reserve development, which were essentially offset by an historic level of industry-wide catastrophe losses. There were PCS designated catastrophe events taking place on 88 of the 91 days of the quarter. Despite pre-tax catastrophe losses of $1.5 billion, we generated slightly positive core income for the quarter. We are very pleased with the underlying fundamentals of our business. Pre-tax underlying underwriting income of $781 million for the quarter was up nearly 40% driven by record net earned premiums of $9.2 billion, and a consolidated underlying combined ratio, which improved 1.7 points to an excellent 91.1%. Earned premiums were higher in all three of our business segments. Underlying profitability in our Business Insurance segment was particularly strong. The underlying combined ratio improved by 3 points to an excellent 89.4%. The underlying combined ratio in our Bond & Specialty business was higher year-over-year, but at 87.8%, still generated a very attractive return. In our Personal Insurance segment, the underlying combined ratio improved by 2 points, reflecting the actions we've taken to improve profitability. Turning to investments, our high-quality investment portfolio generated net investment income of $594 million after-tax for the quarter, reflecting stronger and reliable returns from our fixed-income portfolio and solid returns from our non-fixed-income portfolio. Given our confidence in the strength of our business, we returned $633 million of excess capital to shareholders during the quarter, including $400 million of share repurchases. Turning to production. Thanks once again to excellent execution by our colleagues in the field, we grew net written premiums by $1.3 billion or 14% to a record $10.3 billion. In Business Insurance, we grew net written premiums by 18% to $5.2 billion. Renewal premium change in the segment was a record-high at 12.8%, driven by renewal rate change, which accelerated 2.5 points sequentially to 7.2%. The renewal premium change we achieved this quarter was broad-based. RPC was double-digit or near double-digit in every line, other than workers' compensation, and it was higher sequentially in every line, including workers' compensation. Even with strong pricing retention, an important indicator of marketplace stability, remained very strong at 88%. New business increased 36% to $671 million, led by the property line. In Bond & Specialty Insurance, record net written premiums were about even with the prior-year quarter. Retention in our management liability business was an excellent 91%, and new business increased 11%. Surety net written premiums were also once again strong. Given the attractive returns, we are very pleased with the strong production results in both of our commercial business segments. The growth we're putting on the books is from geographies, products and distribution partners that we know well. In Personal Insurance, top line growth of 13% was driven by higher pricing. Renewal premium change was 19.2% in our Homeowners and Other business, and increased to a record high 16.1% in our auto business. Another quarter of terrific production across the board positions us well for the rest of the year and into 2024. You'll hear more shortly from Greg, Jeff and Michael about our segment results. Before I turn the call over to Dan, I'd like to spend a few minutes on what Travelers is doing in an important area for us, artificial intelligence. We subscribe to the view that over time the impact of AI across the economy is going to be profound, so is the opportunity for Travelers. With our performance transformed mindset and our disciplined framework for assessing our investment priorities, we've been focused for years on responsibly developing differentiating AI capabilities across our three innovation priorities, extending our lead in risk expertise, providing great experiences for our customers, agents, brokers, and employees, and optimizing productivity and efficiency. Between our colleagues who are dedicated to AI specifically and others in enabling disciplines, we have a very significant number of our employees engaged on the objective of making sure that we're leading when it comes to AI. As we've shared before and as you can see on Slide 23 of the webcast presentation, for some time, we've been steadily increasing our technology spend. This year, we'll spend more than $1.5 billion on technology. As this slide demonstrates, we've also been improving the strategic mix of our tech spend. That includes a meaningful increase in investments to develop require cutting-edge AI capabilities built on modern cloud technology. Importantly, we've done all that while significantly improving our expense ratio. In no small part, thanks to the success of our technology investments. The quantity and quality of data are key differentiators when it comes to AI. For more than a decade, we've been investing in datasets, data quality and data accessibility. Between submissions in our commercial businesses and quotes in PI, we intake millions of business opportunities each year. We also take and adjust and adjudicate millions of claims. As one of the largest risk control organizations in the industry, we provide risk mitigation to our commercial customers, completing more than 100,000 risk control consultations annually. We capture valuable data from virtually all of those interactions. Our data also include decades of curated institutional knowledge in the forms of policies, procedures, guidelines, forensic investigations and so on. All of that creates an excellent foundation for the next iteration of generative AI. In addition to our extensive proprietary data, we've been assembling actionable third-party data for years. In fact, we have more than 2,000 datasets from hundreds of third-parties. All-in, we believe that we have a significant and hard-to-replicate data advantage. Given the competitive advantages that will come from deploying AI across the insurance value chain and the expertise, resources and data required to get there, scale will increasingly be a differentiator in our industry, as well the ability to execute complex initiatives effectively and efficiently. Expertise, resources, data, scale and execution excellence, all favor Travelers. The potential use cases for AI in our industry are many and varied. We pursue very focused opportunities that are consistent with our innovation priorities and will create meaningful and sustainable competitive advantages, all with an eye towards leveraging strategic capabilities across our organization. AI capabilities that we currently have in production span the spectrum from those driving efficiency through automation, to more advanced generative AI and large language models. More advanced models augment various aspects of our underwriting, claim handling, service delivery and other work. We use intelligent process automation broadly throughout our business to handle hundreds of routine workflows. Automation and AI have been meaningful drivers of our expense ratio improvement over the past seven years or so. The key success driver in insurance is segmenting risk as finely as possible, to achieve pricing that is accurately calibrated to the risk. Deep learning models have significantly improved our ability to classify it in segment risk in our flow businesses. For example, in Personal Insurance, we leverage proprietary AI and aerial imagery to assess roof and other site-related conditions at the parcel level. Parcel level risk assessment at scale was practically unimaginable to several years ago. And that type of information is very difficult to obtain from the insured with a reliable degree of accuracy. In our Select Accounts business, we estimate that AI has improved business classification, a critical underwriting input by more than 30%. In our Middle Market business, we've developed a suite of sophisticated AI models, which facilitate targeted cross-selling, supporting our effort to sell more products to more customers. We're also using AI to better understand our customers and their needs. So this improved customer segmentation, we can better align new product development and generate insights that improve the customer experience. Enhancing our industry-leading analytics using machine learning models to deliver sophisticated actuarial insights into loss cost trends and development, which improve our already strong pricing and product monitoring capabilities. On the most advanced end, we're leveraging generative AI in large language models, and we've been doing so for several years. For example, in our Bond & Specialty business, our proprietary large language models have processed hundreds of thousands of broker submissions as we work toward improving intake time from hours to minutes. This will improve our responsiveness to our customers and distribution partners, and contribute to our productivity. In our claim organization, our proprietary large language model ingest legal complaints filed against our insureds and then highlights key liability and coverage issues, assists in routing the cases to the best-suited defense counsel, and provides risk-related insights that can be incorporated back into our underwriting process. We've also developed and are piloting a Travelers claim knowledge assistant, a generative AI tool trained on many thousands of pages of proprietary technical source material that was previously only accessible to thousands of different documents. The model provides claim professionals with the ability to easily access accurate actionable information on technical and procedural claim matters, increasing speed, accuracy, and consistency in various workflows, including in interactions with our customers and distribution partners. So in terms of AI, we're investing with speed and strategic direction, consistent with our stated objective of delivering industry-leading returns. I've only shared some of what's in-flight, and the capabilities that we've developed are in various phases of adoption. The full impact of the capabilities we're developing, and others on our roadmap are still ahead of us. To sum things up, we are very confident in the outlook for our business. We have terrific underlying fundamentals in our commercial businesses, improving underlying results in our personal insurance business, and steadily rising investment returns in our fixed-income portfolio. As you've heard, we're also investing in impactful new capabilities to advance our ambitious innovation agenda. With that momentum and the best talent in the industry, we are well-positioned to continue to deliver meaningful shareholder value over time. And with that, I'm pleased to turn the call over to Dan.

Greg Toczydlowski:

Thanks, Dan. Business Insurance produced $402 million of segment income for the second quarter, down from the prior-year quarter, driven by prior-year reserve development and higher cats, as Dan mentioned. Underlying underwriting results continue to be exceptional, with the underlying underwriting income up more than 50% from the prior-year quarter. We're once again particularly pleased with the quarter's underlying combined ratio of 89.4%, which improved by three points from the prior-year quarter. The loss ratio benefited from property losses that were about a 1.5 points better than our expectations for the current year quarter. The loss ratio also improved due to earned pricing. The expense ratio remained strong at 30.1%. Net written premiums increased 18% to a quarterly record of $5.2 billion, driven by renewal premium change of 12.8%, retention of 88% and new business of $671 million, all record highs. Underneath RPC, renewal rate change accelerated sequentially from the first quarter by 2.5 points to 7.2%. We're thrilled with these production results and the superior execution by our field team in the marketplace. In terms of pricing, we're pleased with our response to the persistent environmental headwinds in both the property and liability lines. In each of our product lines, renewal premium change was higher than the first quarter. And beyond pricing, we continue to improve terms and conditions to ensure we're achieving an appropriate risk-reward trade-off on the business we write. As we always say, we execute in a granular manner, deal-by-deal, class-by-class. Into that point, we're thrilled with our execution. Demonstrated by record retention of 88% on our very-high quality book of business and rate that is thoughtfully segmented by return profile. New business, as a percentage of the book, returned to pre-pandemic levels, led by the property line. We're pleased with new business dollars at an all-time high. And as always, when it comes to new business, we remain focused on risk selection, underwriting terms and conditions, and pricing. We're also very pleased with the impact that our strategic investments are having on our production results. As for the individual businesses, in Select, renewal premium change was up 1 point from the first quarter to a strong 10.6%, while retention also remained historically high at 84%. New business increased $30 million or 28% from the prior-year quarter, driven by the continued success of our BOP 2.0 product. In Middle Market, renewal premium change was up more than 2 points sequentially from the first quarter to a historically high 10.5% with renewal rate change increasing sequentially by 1.5 point to 5.9% and continued strong exposure growth. Retention was once again exceptional at 90%, while new business was up 32% from the prior-year quarter, with increases across all account sizes in most markets. To sum up, Business Insurance had another strong quarter and continued to execute on the fundamentals to drive profitable growth. With that, I'll turn the call over to Jeff.

Michael Klein:

Thanks, Jeff, and good morning, everyone In Personal Insurance, the second quarter segment loss of $538 million and a combined ratio of 122% were significantly impacted by catastrophes. While it's not unusual for us to have a loss in the second quarter given it's typically the quarter with the highest weather-related losses, catastrophe losses this quarter for both us and the industry were significantly elevated compared to historical results. Net written premiums for the quarter grew 13%, driven by double-digit renewal premium change in both Domestic Automobile and Homeowners and Other. The underlying combined ratio of 94.1% improved 2 points from the prior-year quarter, reflecting an improvement in the underlying combined ratio in Homeowners and Other, partially offset by an increase in Automobile. In Automobile, the second quarter combined ratio was 108.4% with an underlying combined ratio of 103.5%. The underlying combined ratio increased 1.7 points from the prior-year quarter due to higher severity, driven by increased vehicle replacement and repair costs and a mix-shift from collision-only claims for its claims with bodily injury and third-party property damage, which is more consistent with more cars on the road leading to more multi-car accidents. These increases were partially offset by the growing benefit of earned pricing and a lower expense ratio. While some of the inflationary pressures in auto are beginning to show signs of easing, they are not improving at the rate we expected. Consequently, we're not yet achieving the written rate adequacy levels, we had anticipated. While we continue to make progress and expect to get there in the coming quarters, exactly when will depend on a few things. For example, how quickly inflation comes down, how quickly we can get additional rate through the regulatory process and our actual loss experience. In Homeowners and Other, the second quarter combined ratio of 135.1%, increased 17.1 points, due to significantly higher catastrophe losses. The underlying combined ratio of 85.2% improved 5.1 points, primarily driven by non-cat weather losses that were lower than in the prior-year quarter. Non-cat weather losses in the quarter were also better than our expectation, as more events reached our catastrophe threshold. Turning to production, our results continue to demonstrate disciplined market execution of rate and non-rate actions in both lines as we remain focused on improving profitability and managing growth in response to continued inflationary pressures in the environment. In Domestic Automobile, renewal premium change of 16.1% increased 2.1 points from the first quarter of 2023. We expect renewal premium change to continue to increase from current levels throughout the second half of this year. In Domestic Homeowners and Other, renewal premium change of 19.2% was broadly consistent with the first quarter. We expect renewal premium change to remain in the high-teens through the end of the year. Before I conclude, I just want to take a minute to thank our claim partners for responding to our customers when it matters most. Behind the aggregate statistics of catastrophe events occurring virtually every day of the quarter, our tens of thousands of individual customers whose homes and vehicles are damaged or destroyed and whose lives are disrupted. In each case, our claim team is responding, helping those customers get their homes repaired and their cars back on the road, continuing to deliver high-quality customer service despite the high volume of clients. Both the loss environment and the personal insurance marketplace remain dynamic. We continue to respond to the changing environment with a steadfast focus on execution quickly addressing changes in loss experience with targeted pricing, underwriting and other non-rate actions, remaining disciplined in writing business that is consistent with our appetite and making thoughtful and impactful investments for the future. We're confident that the actions we've taken and we'll continue to take will improve profitability as we move through 2023 and beyond. Now, I will turn the call back over to Abbe.

Operator:

[Operator Instructions] Your first question comes from the line of Greg Peters of Raymond James. Please go ahead.

Michael Klein:

Sure. So I can start on the property side, Greg. Certainly, the catastrophe experience in the quarter was significantly worse than prior year and n worse than our expectations. In terms of our shift in strategy, what I would say is we continue to execute a series of actions in the property line to manage growth and improve profitability. And again, first and foremost, you see that in the pricing and the production statistics that we shared with you on the webcast. But beyond that, we're managing terms and conditions, think deductibles, think roof age eligibility, think coverage levels on roof replacement, and a variety of actions that we look at very granularly state by state, market by market, account by account. And then one of the other things we're really encouraged by, Alan had mentioned in his discussion around artificial intelligence, is our aerial imagery and artificial intelligence-enabled capability we have there to refine our underwriting and our risk selection. So less the shift in strategy and more a continuation of a really broad array of profit management and profit improvement efforts in the personal lines property space.

Greg Peters:

Got it. All right. Thank you for the answers. And then, I guess, I'll pivot, Greg, also during your comments, you talked about reserve development. Maybe spend a minute - don't really touch upon workers' comp, but the adverse development in the other lines.

Greg Peters:

Got it. Thanks for the answers.

David Motemaden:

Hi, thanks. Good morning. I had just a follow-up question just on the adverse prior-year development. I guess, what does that do to your view of future loss cost trends? It sounds like some of it is run-off, but also some of it is more business that you're obviously still writing. So I'd be interested in how you've changed your 5.5% to 6% loss trend assumptions.

David Motemaden:

Got it. Thanks. And then I guess, I should just take that. I mean, it's obviously a very fluid environment. But I guess, it would - fluid macroenvironment. It would seem that just given the re-acceleration in renewal rate change, the gap between written rate and loss trend has been expanding. I guess, is that the right take? Or is there anything else that I'm missing there? Obviously, we have to take catastrophes into account, but there - I know Fidelis has come in. I'm just wondering if there's anything else I'm missing on the underlying loss ratio.

Dan Frey:

Yes. And David, it's Dan. I'll just - you mentioned Fidelis, I mean, we said at the beginning of the year that Fidelis was not going to be big enough to have a meaningful impact on the underlying combined ratio, and that's still the case including Q2.

David Motemaden:

Thank you.

Operator:

Your next question comes from the line of Ryan Tunis of Autonomous Research. Please go ahead.

Alan Schnitzer:

Let me start, Ryan, and I will turn it over to Dan. But we're squaring triangles, and we're doing - we're applying actuarial analytics to a series of triangles and historical losses, and that's really how we're coming up with this. I mean, the overwhelming thing that all of us are looking at is higher levels of economic inflation. And so that - you know, that is no doubt a contributor here.

Ryan Tunis:

Got it. And then for Michael, and maybe Greg, I guess, on the cat front, I mean, you guys were highlighting a frequency of events. But it seems like to me that severity must be at least as bigger of a contributor. Then maybe I'll just talk about - yes, in other words, I don't think I would have ever expected $1 billion of personalized with 6 Bcf] events. So from a severity perspective, like how - what's weighing on is here? Is it like the size of the hail, in other words, like the nature of the weather? Or how much of is elevated repair cost, demand surge like that type of thing?

GregToczydlowski:

And Brian, from a Business Insurance or a commercial point-of-view, we weren't immune from some of the same dynamics that Michael just articulated. I think we just have a broader array of products that you get a little more diversification when you add the workers' comp, the GL and all the other products on top of that.

Alex Scott:

Hi, good morning. First one I have is on the Business Insurance underlying loss ratio improvement. I was hoping you could help us unpack it a little in terms of workers' comp versus maybe the other products. Certainly, the reserve development is sort of a good indication of how healthy things are on workers' comp, but pricing is down. I mean, is that a business line that's helping the underlying improvement year-over-year, or is it detracting from it? Could you kind of dimension that and help us think through some of the underlying drivers?

Alex Scott:

Okay. Second question I had is on pricing. There's, I'd say, more reacceleration in your pricing than we're hearing from, I guess, Marsh earlier today, and some of the barometers that are out there and so forth. Anything that's unique around the way you're approaching the market there? And could you help dimension it all, how much of that reacceleration of pricing is necessary for the reinsurance costs? You mentioned, it sounds like maybe loss cost trend hasn't moved that much. But help us think a little bit about how much of that can help you to tread water, first allow more underlying improvement?

Operator:

Thank you. Your next question comes from the line of Elyse Greenspan of Wells Fargo. Please go ahead.

Dan Frey:

Yes, Elyse. It's Dan. So I think you're thinking about the property piece, the right way. And then there's 50 basis points left over, and Greg mentioned the continued benefit of earned pricing. That's not the only thing going on in there. As always, there are - there are pluses and minuses. We're trying to call out the main drivers for you, and those are - those are the two main drivers. If there was anything else of real significance, I think we do a pretty good job of trying to make sure we include that in the commentary.

Alan Schnitzer:

Are you talking about renewal price change, Elyse, is that?

GregToczydlowski:

Yes, Elyse, you're right. I mean, clearly, we had a real strong quarter in terms of both rate and exposure in property. But we also had significant movement across the rest of the portfolio also, again, in both rate and exposure.

Operator:

Thank you. Your next question comes from the line of Brian Meredith of UBS. Please go ahead.

Jeff Klenk:

Hi, Brian. It's Jeff. Thanks. I would say that we're watching inflation in materials and labor costs relative to construction. But honestly, really I think the prepared remarks really summed it up for you, right? We had a couple of losses that drove the underlying loss ratio change and ultimately this can be a lumpy line, and we feel really good about our market-leading surety book.

Jeff Klenk:

Sure. The credit availability for our contractors is absolutely an issue. We take that into account with our high credit quality book of business the way we underwrite this book. We got a high-quality book of contractors that we focus on there. And so your point is well taken. It's a part of the underwriting process. That's where I'd leave it. Thanks for the question.

Michael Klein:

Yes, Brian, thanks for thanks for the question, and I think it's - I think it's a good observation. As we talk about pretty consistently, we feel pretty good about our relationships with the departments of insurance, are we really endeavored to make sure they have all the information necessary to evaluate and approve our rate increase requests? And starting with us, we continue to file for increases that align with our most recent experience and our indicated rate needs. That said, what we're seeing and you're seeing in the headlines, some news about increased scrutiny and/or states considering or proposing changes to the way that they regulate pricing in response to the continued period of increases necessary to keep up with loss costs. And so I'd say, on the margin, there is a couple of places where it's getting a little more challenging. But broadly speaking, we have still been able to file and get approved the rate we think we need in response to the increased costs.

Operator:

Thank you. Your next question comes from the line of Josh Shanker of Bank of America. Please go ahead.

Alan Schnitzer:

I would say the answer to that Josh is, yes. And I think we've said pretty consistently over the last few years that we have been cautious and reflecting that level of uncertainty into the way we think about loss cost and reserves. So I think the answer is yes, and we've been doing exactly that.

Alan Schnitzer:

Yes, it's probably a longer conversation, Josh. We can follow-up it. But let me just give you one example, and I think we've said this over the last couple of years. If you were just looking at the data, you might have assumed that some aspects of loss trend had improved over the last couple of years. And whether that's true in Personal Insurance, and you see the lack of negative PYD in personal auto, for example. Or if you look at social inflation, we said if the courts were closed, then that data could have been misinterpreted to mean things are getting better. You look at that data and you say, I don't believe it and we understand that it's distorted and that there are other things that could be impacting it. And so we are going to do the best we can to try to understand where the uncertainty is coming from and to make sure that we're - that we're reflecting our view of uncertainty as we're thinking about either our prior-year reserves or managing our current loss taxes.

Meyer Shields:

Thanks. I want to start with a question on personal lines. Michael mentioned that the deceleration and claim cost inflation wasn't as strong as we anticipated. I thought you could give us some color on what - I guess, the indicators that you've previously used what they're suggesting for personal loss cost inflation for the back half of the year?

Meyer Shields:

Okay, perfect. That's helpful. And final question. When we look at, I guess, whether it's possibly changing weather patterns or the mix shift within BI slightly towards property or just inflation pushing more weather losses above the cat threshold, how do you think about sort of the magnitude of coming year's catastrophe load compared to where you've been recently?

Operator:

Thank you. We have time for one more question. Your next question comes from the line of Tracy Benguigui of Barclays. Please go-ahead.

Alan Schnitzer:

Yes. Tracy, it's hard to answer a question like that without claiming a policy. So I'm going to - I'm going to avoid that. And we're happy to take this offline with you and talk a little bit more about it if we can do that consistent with Reg FD. About PFAS, what I would say about that is, this issue has now been around for a while. What we know about it is, it is reflected in our reserves, and I'm not sure there's a lot more to say about it at this point.

Alan Schnitzer:

Didn't say that Tracy, but we're not going to really go into the drivers. We gave you the big drivers of the - of PYD, We're not going to go into the specific coverage issues in PYD.

Abbe Goldstein:

Thank you very much. We appreciate everyone's time. And as always, if there's any follow-up, please feel free to reach out directly. Thank you.

Operator:

Good morning, ladies and gentlemen. Welcome to the First Quarter Results Teleconference for Travelers. [Operator Instructions] As a reminder, this conference is being recorded on April 19, 2023. 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.

Alan Schnitzer:

Thank you, Abbe. Good morning, everyone, and thank you for joining us today. We're very pleased to report a terrific start to the year, including an excellent bottom-line result for the quarter, particularly in light of the high level of severe weather activity across the United States and very strong production in all three of our business segments, which produced net written premium growth of 12% for the quarter. Profitability and growth in our Business Insurance segment were particularly strong. And as you'll hear from Michael, we're positioned for improved profitability in our Personal Lines business. Core income for the quarter was $970 million, or $4.11 per diluted share, generating core return on equity of 14.5%. Core income benefited from record net earned premiums of $8.9 billion, up 10% compared to the prior-year period, an excellent underlying combined ratio of 90.6% and a one-time tax benefit. Catastrophe losses were elevated as the industry experienced the highest number of Q1 PCS catastrophe events since PCS started tracking in the 1950s. Turning to investments. Our high-quality portfolio generated net investment income of $557 million after tax for the quarter, reflecting reliable results from our fixed income portfolio and positive returns from our non-fixed income portfolio. Our underwriting and investment results together with our strong balance sheet enabled us to return $680 million of excess capital to shareholders, including $462 million of share repurchases. At the same time, we grew adjusted book value per share and made important investments in our business as we notched another quarter of successful execution on a number of important strategic initiatives. In light of our strong financial position and confidence in the outlook for our business, I'm pleased to share that our Board of Directors declared an 8% increase in our quarterly cash dividend to $1.00 per share, marking 19 consecutive years of dividend increases with a compound annual growth rate of 8% over that period. The Board also authorized an additional $5 billion of share repurchases. Turning to the top-line in production. Thanks once again to excellent execution by our colleagues in the field, we grew net written premiums by 12% this quarter to a record $9.4 billion, with all three segments contributing. In Business Insurance, we grew net written premiums by 15% to $5.2 billion. You may recall that we entered into a quota share arrangement with Fidelis for 2023. This contributed about $160 million, or around 3.5 percentage points, net written premium growth in the segment. Results from the quota share are not reflected in our production statistics. Renewal premium change in Business Insurance remained historically high at 9.6%. Pure renewal rate change ticked up a little bit from the fourth quarter, driven by the property, umbrella and auto lines. Even with continued strong pricing broadly, retention in Business Insurance was very strong at 87%. New business of $639 million was a record and up 17% from the prior-year period. In Bond & Specialty Insurance, net written premiums increased slightly from a very strong level in the prior-year quarter, with excellent retention of 90% and new business growth of 25% in our management liability business, and a record level of Q1 net written premium in our surety business. Given the attractive returns and the high quality of business in our commercial segments, we are very pleased with strong production results in these businesses. In Personal Insurance, top-line growth of 12% was driven by higher pricing. Renewal premium change increased to 20.2% in our homeowners and other business, and a 13.9% in our auto business. Another quarter of terrific production across the board positions us well for the year ahead. You'll hear more shortly from Greg, Jeff and Michael about our segment results. In light of the recent disruption in the banking sector, I'd like to share a reminder about how our business differs from those in the headlines. We often talk about the high quality of our investment portfolio and I'll get back to that, but first, let me say a few words about our prudent management of that portfolio. The banking sector disruption started with an acceleration of liabilities in the form of withdrawals from demand deposit accounts. As we all know, there's no acceleration of our largest liabilities, loss reserves. In other words, there's no such thing as a run on the bank in our business. But the banking episode also highlighted the risk to the equity of an enterprise when the duration of assets and liabilities are mismatched. We manage the duration of our assets relative to our liabilities. Such as on an economic basis, we've effectively defused our insurance liabilities. In other words, increases or decreases in interest rates generally have offsetting impacts on the present value of both our investment portfolio and our outstanding insurance liabilities. This essentially boxes the economic impact of changes in interest rates. As we've explained in response to your questions over the years, this is a reason why we didn't reach for yield by increasing duration in the low interest rate environment over the past decade and a half. In addition to duration, the bank solvency issues also highlighted the importance of thoughtfully managing liquidity. Quarter in and quarter out, we've consistently generated strong cash flows from operations. Our cash flows from premiums alone over the course of the year are consistently greater than our annual payments for claims and expenses. That was true throughout the 2008 financial crisis and more recently throughout the pandemic. We also have a steady and reliable stream of cash flows from our very high-quality fixed income portfolio. In addition to the periodic interest payments we receive on the bonds we hold, the proceeds from our maturing investment each month provide an additional source of liquidity. Back to the high quality of our investment portfolio, macroeconomic uncertainty reminds us of how important that is. And the quality of our holdings and our disciplined focus on risk adjusted returns distinguish us. Our fixed income investments are highly diversified. They have an average credit rating of AA and comprise 93% of our investments. Our alternative investments are also high quality and well diversified. Page 20 of our webcast presentation includes further details. To address another topic that's been in the news lately, Page 21 of the webcast presentation includes information demonstrating the relatively nominal risk we have in our investment portfolio related to commercial real estate. Real estate represents a small percentage of our total invested assets. Our fixed income real estate investments are very high quality and the largest component of our non-fixed income real estate investments is wholly-owned properties. The wholly-owned properties are carried at their depreciated historical cost. In other words, they were never written up when market values were high, and the appraised value of the portfolio is well above book value. The portfolio has also produced a strong free cash flow yield. In short, whether we're talking about underwriting or investing, Travelers is built to manage through uncertain times. Before I turn the call over to Dan, I'll share with you that we just returned from our annual conference with our most significant distribution partners who collectively represent more than half of our premium. We all left with the continued confidence that our relationships with these business leaders and their firms are as strong as ever, and feeling tremendous support for the strategic initiatives that we have underway. It's a great reminder that our position with distribution sets us apart and is an important competitive advantage that's hard to replicate. To sum things up, we're off to a great start for the year with another quarter of strong profitability and growth, driven by our underwriting and investment expertise. At the same time, we continue to successfully execute on our innovation strategy, which has contributed to significantly accelerated premium growth, superior returns and industry low volatility over the past decade. With the best talent in the industry, we remain well positioned for success through a wide range of economic and operating environments, and confident in our ability to continue to create shareholder value overtime. With that, I'm pleased to turn the call over to Dan.

Greg Toczydlowski:

Thanks, Dan. Business Insurance continues to deliver exceptional results, with a strong first quarter of 2023 in terms of both top- and bottom-line results. Segment income of $756 million was up 13% from the first quarter of 2022, driven by higher underlying underwriting income. In addition to higher earned premium and the lower underlying combined ratio, underlying underwriting income also benefited from the segment share of the one-time tax benefit that Dan mentioned. We're once again particularly pleased with the quarter's underlying combined ratio of 89.6%, which was more than 2 points better than the prior-year quarter. The improvement was driven by the loss ratio, which benefited from property losses that were lower than a somewhat elevated level in the prior-year quarter and the benefit of earned pricing. The expense ratio was a strong 29.8%, and continues to benefit from the combination of the leverage from higher earned premiums and our strategic focus on productivity and efficiency. Net written premiums increased 15% to an all-time quarterly high of $5.2 billion, benefiting from historically high renewal premium change and retention, as well as record new business levels. As you heard from Alan, the Fidelis quota share also contributed to the higher net written premiums. Turning to domestic production for the quarter, renewal premium change was once again historically high at 9.6%, with renewal rate change ticking up sequentially to 4.7% and continued strong exposure growth. Retention of 87% also remained exceptional, while new business was up 17% from the first quarter of last year to a record high of $639 million. We're thrilled with these production results and our field superior execution in the marketplace. In terms of pricing, we're pleased to be able to sustain strong levels of renewal premium change to address the persistent environmental headwinds. 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 are particularly pleased that our ongoing focus on our strategic investments help us drive an increased flow of new business opportunities. And we capitalized on those opportunities by being more responsive in quoting and converting on more quality accounts during the quarter. As for the individual businesses, in select, renewal premium change remained strong at 10%, while retention increased [a point] to an exceptional 84%. New business increased 16% from the prior-year quarter to $129 million, driven particularly by the continued success of our BOP 2.0 product. In middle market, renewal premium change was 8.1%, with renewal rate change increasing sequentially to 4.4%, while exposure growth was once again strong at 4.1%. Retention remained exceptional at 89% and new business was up 19% from the prior-year quarter with increases across all account sizes in most markets. As I mentioned a moment ago, we're pleased with the impact that our focus on strategic initiatives is having on our production results. 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.

Michael Klein:

Thanks, Jeff, and good morning, everyone. In Personal Insurance, first quarter segment income was $83 million. The combined ratio of 101.5% increased approximately 6 points from the first quarter of 2022, driven by higher catastrophe losses, primarily related to the significant tornado and hail events in March. The underlying combined ratio of 92.9% was comparable to the prior year, as the benefit of earned pricing across all products, lower losses in the homeowners and other product line and a lower expense ratio were offset by elevated losses in the automobile product line. Net written premiums for the quarter grew 12%, driven by double-digit renewal premium change in both domestic automobile and homeowners. In automobile, the first quarter combined ratio was 104.7% with an underlying combined ratio of 103.4%. The underlying combined ratio increased 4.6 points from the prior year due to increased vehicle replacement and repair costs, higher bodily injury severity and, to a lesser extent, higher frequency. These increases were partially offset by the growing benefit of earned pricing as well as a lower expense ratio. In homeowners and other, the first quarter combined ratio of 98.5% increased 7.3 points, primarily due to higher catastrophe losses. The underlying combined ratio of 82.7% improved 4.2 points, reflecting lower losses associated with mild winter temperatures in the Eastern and Central United States, as well as the benefit of earned pricing and a lower expense ratio. These benefits were partially offset by elevated loss severity from continued labor and materials price increases. As a reminder, for homeowners, we expect the upcoming second quarter to be the seasonally highest quarter for weather-related losses. Turning to production. Our results demonstrate the impact of rate and non-rate actions in both lines, as we seek to improve profitability and manage growth. In domestic automobile, renewal premium change of 13.9% increased 2.5 points from the fourth quarter of 2022. We expect renewal premium change to be modestly higher than this level throughout the remainder of 2023. We've shared previously that we expect written pricing in auto to be adequate in states, representing the majority of our premium by mid-year. While the loss environment is incrementally more challenging, we are adjusting our pricing plan accordingly and still expect to get there or very close to it. We will continue to pursue rate increases necessary to deliver target returns and the benefits of this increased pricing will earn into our results over time. As we've taken significant pricing actions, retention and growth in auto have continued to moderate as expected. Policies in force declined 1% from year-end 2022. In domestic homeowners and other, renewal premium change of 20.2% increased approximately 6 points from the fourth quarter. We expect renewal premium change to remain at this elevated level through the end of the year. In the face of these increases, retention declined but remained strong, new business written premiums were in line compared to the prior-year quarter, and policies in force remained consistent relative to year-end 2022. In Personal Insurance, we entered the year with continued focus on disciplined marketplace execution in response to a loss environment that remains challenging. In addition to making more progress in pricing, we continue to implement non-rate actions. Examples include tighter underwriting in both auto and home, and improved pricing segmentation and risk selection in property. We're encouraged by the progress we're making towards our goal of achieving target returns. While we have more work to do, we are confident that the actions we have taken and will continue to take will improve profitability as we move through 2023 and beyond. Now, I will turn the call back to Alan.

Abbe Goldstein:

Thanks, Alan. Okay, we are ready to open up for your questions.

Greg Peters:

Well, good morning, everyone. And I guess where I'd like to start off is on the top-line growth in the Business Insurance, the 15%. I'm looking at Slide 8 of your presentation. Can you provide some color on the various lines that are going up? I was intrigued by national property. And then, the geography of Fidelis, is that an international? And when I think about property, can you talk about where the growth is coming from in the context of what we're seeing in reinsurance costs?

Greg Peters:

Great. And then, my follow-up question, just pivoting to inflation assumptions. If we're watching CPI data, it still seems like there's inflationary pressures. And maybe, Alan, you can give us your view of how you think inflation is going to affect your loss cost assumptions for the current accident year?

Greg Peters:

Got it. All right. Thanks for the answers.

Mike Zaremski:

Hey, good morning. Thanks. Maybe focusing on the Business Insurance segments, Cognizant results were good. But just curious, Greg, you mentioned persistent environment -- environmental headwinds. Reserve releases were lower than expectations in that line. And sorry to be harping on the negative, but umbrella liability was called out as one of the reasons and the environmental reserve addition looks like it was lower year-over-year looking at the Q. So, just any comments there?

Mike Zaremski:

Sorry. Curious about what Greg meant about the persistent environmental headwinds. Are you speaking to inflation picking up a bit or kind of staying kind of at levels that are a bit above historical trend?

Greg Toczydlowski:

Mike, the only thing I'd just add and I think that's what's driving the renewal premium change of close to 10% and ultimately the combined ratio of sub-94% and an underlying of sub-90%. So, I feel like given those headwinds, we're operating very well in terms of relationship to them.

Michael Klein:

Sure, Mike. It's Michael. Yes, I would say, I would agree inflation is higher for longer continuing to put pressure on both lines. And I called that out as a driver of the continued deterioration in auto, and then a little bit of an offset to some of the improvement in property. So, we continue to face that persistent inflation pressure. The other thing just to be really clear on the comment about rate adequacy, right, that's a comment about written adequacy for business we're putting on the books, which is really a prospective view, and certainly the GAAP financials will lag that, because we need that rate to earn through before it shows up in the GAAP financials, which is why I've been consistently commenting that it will take time for those rate changes to earn through. But we do see continued momentum in pricing in both auto and home, and I'll give you a quick example. We were actually really pleased last Friday to get approval from the State of California for 19 points of rate in auto effective May 31st, which is one of the elements of that prospective view and one piece of the puzzle in terms of why we see renewal premium change going higher from here.

Operator:

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

Michael Klein:

Yes, thanks, Brian. No, we did not have an impact from the Florida lawsuit filings in our result, and that's largely due to the fact that the comment that you just made, our auto market share in Florida is about 2%. So, it's a relatively small exposure for us.

Dan Frey:

Hey, Brian, it's Dan. I'll take that. So, look I think the short answer as we said at the end of the fourth quarter is it's just not going to be big enough to move the needle a lot. If it plays out the way that we hope it would play out, it would be -- it would have a very modest favorable impact to underlying combined ratio and business insurance. The first quarter, it's tiny, because the earned premium component of a partial earning is just not that big. And then, the only other thing I'll throw out there as a reminder since you mentioned the property book or any other business that they write, we do have a loss ratio cap on that quota share, so it can't really hurt us badly on the other side.

Operator:

Your next question comes from the line of Jimmy Bhullar from J.P. Morgan. Your line is open.

Alan Schnitzer:

Hey, Jim, it's Alan. I think we'd like to get away from forecasting margins. What I will say is we have answered that question from time to time over the last year or so and, frankly, these written measures aren't that different than they've been over the last year or so. But we would like to get away from forecasting. What I will say is we are very, very pleased with the business we're putting on the books.

Dan Frey:

Hey, Jimmy, it's Dan. So, very open ended. We are rightsizing capital over time. It will depend on our view of capital strength. It will depend on what happens from a loss perspective. It will depend on our view of growth and how much capital we need to hold on to growth. I think what the increased authorization gives us is

Jimmy Bhullar:

Understood. And just lastly if I could just a follow up on the point on margins. If we think about the loss inflation in your Business Insurance division, should that be somewhat similar to what general CPI inflation is, or what are the puts and takes? Because at one point, I guess, social inflation was a big deal, but it seems like it hasn't come back the same way as it was prior to COVID.

Dan Frey:

And Jimmy, it's Dan. On social inflation, just to clarify and I think we've said it probably every quarter for the last 10 quarters, social inflation was elevated. We called it early in late 2018. We saw it in 2019. We saw it in 2020. Even during COVID when the court slowed down, we don't think social inflation has gone anywhere. So, if you're thinking that social inflation is less of an issue now than it was, we don't think that, and we continue to book our loss reserves on that basis.

Jimmy Bhullar:

Yeah. And I see that you're booking at that level, but are you actually seeing that as well? Because it seems from the outside in that it's not as high -- doesn't seem as elevated as it has been.

Jimmy Bhullar:

Okay. Thank you.

Operator:

[Operator Instructions] Your next question comes from the line of Alex Scott from Goldman Sachs. Your line is open.

Dan Frey:

Yeah, Alex, it's Dan. So, I think you're coming to the right conclusion. Not a big impact -- excuse me, or we would have called it out. Because a reminder, we did say even back in the fourth quarter when we went through what the 1.1 reinsurance renewals looked like and where our attachment points were and what the cost was and what treaties we renewed and what treaties we didn't renew that we didn't expect that to have a big impact on margins going forward and that proved to be the case. Mix does move over time. We gave you the written premium numbers by line of business, so you can see that. But not a driving factor in the year-over-year margin comparison.

Alan Schnitzer:

Alex, let me just try to respond to that with some general comments about the pricing environment and you can follow-up if we don't get to the question. I would say the pricing environment remains very strong. We saw, as you saw, in the numbers a little acceleration in renewal rate that was led by property, umbrella and auto. And we'll just have to see whether that's the start of the trend in that direction or it's not. And very significantly when you were thinking about prices, we've said many times even with another quarter of very strong pricing, retentions remain at historical highs, which for us is terrific given the attractive return. So, in broad strokes, and I think Greg included this in his commentary, there are two trends impacting pricing. On the one hand, there are headwinds and we've been seeing those for a while now, and they're still there, and that's what you see us reacting to. And on the other hand, after years of some pretty good pricing and improvements in terms and conditions, [returns in] (ph) a better place. And so, the pricing that you see us putting up is what we're achieving is really threading that needle incredibly well. I mean, hats off to our field organization for just really superior execution.

Alan Schnitzer:

Thank you.

Josh Shanker:

Yes, thank you very much for taking my question. Could you -- I don't know what details I'm looking for [here, I have] (ph) some smart ones. Where are the courts shaping up right now? How is the backlog of cases come through? How efficiently are they handling current cases? Compared to where we were one, two, three years ago, where are we in that story?

Josh Shanker:

And does the backlog mean that if I have a new incident in 2023, that it's going to be a extended period of time before it can see a courtroom?

Josh Shanker:

I do appreciate the answers. Thank you.

Alan Schnitzer:

Thanks, Josh.

Tracy Benguigui:

Thank you. Good morning. I'd also like to wish Doug Russell best of luck. I really enjoyed the interactions in my prior role over many years. Hey, since the Boy Scouts' appeal by insurance did not go through, wondering, were you holding out on that appeal passing or do you feel good about the IBNR reserves you set aside? It would also be helpful if you could quantify how much IBNR you set aside for reviver cases in general.

Tracy Benguigui:

That's very helpful. Maybe just a follow-up question that Josh raised. I noticed in your 10-K, you've reported a lower number of -- cumulative number of reported claims. And I'm wondering when you set aside reserves if you think about a more normalized number of claims coming through considering the backlog in the court system?

Tracy Benguigui:

To something north of the reported claim, correct?

Tracy Benguigui:

Got it. Thank you.

David Motemaden:

Hi. Thanks. Good morning. I had a question on the Business Insurance underlying loss ratio. Could you talk about some of the drivers of the improvement year-over-year and the sustainability of it going forward? And I'm specifically looking just for how much lower the non-cap property losses were this year versus the elevated level last year? And were they at a lower level than you would normally expect in a typical first quarter?

David Motemaden:

Okay. Great. That's helpful. And then, just a question for Alan, just on the pricing environment and specifically for the property business. So, last quarter, I think you had said you saw property rate accelerate month-by-month in the quarter. Just wondering how that trended in the first quarter here. And just given property is a seasonally small part of the business in the first quarter, would you expect continued acceleration in renewal rate change in Business Insurance?

David Motemaden:

Got it. Okay. That makes sense. Thank you.

Operator:

Your next question comes from the line of Paul Newsome from Piper Sandler. Your line is open.

Alan Schnitzer:

Thanks, Paul.

Michael Klein:

Yes, Paul, it's Michael. I would say probably nothing that would stand out. I will tell you that the first quarter in auto is one of the tougher quarters to try to diagnose trends in because of changes in weather, when the weather improves, when you get winter storms or not, the sort of frequency and severity results in auto in Q1, sort of inter-quarter, as you described, are sort of the toughest to discern trends from really of any quarter in the year. And then, as you look at the external indices, you see wholesale used car prices moving around. One consistent trend we see underneath everything is parts and labor costs continuing to rise. That's been fairly steady for a long time. And then, again, a lot of the items that I mentioned, just impact driving behavior very differently from one year to the next. So, I wouldn't say I see anything on the loss side that's worth pointing out from within the quarter. And then, if you think about more of the business dynamics, to your point about digital advertising, et cetera, we continue to see healthy demand for quotes in the marketplace. And I think there's a variety of drivers of that, probably the biggest of which is the rate that's going through the marketplace and through the industry driving people to shop. So, I don't know if that was one of the elements you were trying to get at. But certainly, we see pretty healthy quote activity, again, through the quarter, not a lot of inter-quarter variability.

Michael Klein:

No, I think you're spot on, Paul. We have seen the loss experience be incrementally worse, frankly than it was and than we expected. And so, we have adjusted our rate plan for 2023 accordingly and are seeking more rate than we thought we would as we put the plan together for the year. And so that's -- but that is underneath the comment that I made about RPC going north from here for the balance of the year. So that expectation of where RPC is headed reflects both our original plans around rate and the additions that we're now seeking because the loss experience has been a little bit worse.

Operator:

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

Greg Toczydlowski:

Yes. Good morning, Michael, this is Greg. First, I'd point to the top-line in select, plus 11%. And you can see on the webcast, a lot of that is being driven by a strong pricing environment with a 10% RPC. But you can also see below that, that we've got real strong new business. New business is up 16% over the prior year, and we've shared with you the success of our BOP 2.0 product. So that's driving a lot of the new business. So, the combination of new business and pricing is really driving that strong top-line growth. And we're feeling terrific about the profit profile of that business and continue to invest in it.

Jeff Klenk:

Yes, Michael, this is Jeff Klenk. So, relative to the financial institutions, we've got some exposures on some of the financial institutions that were prominent in the news in the first quarter. We booked some losses for those over and above what we have in our loss picks. And I mentioned in the prepared remarks, that's really the primary driver of the 3.9 points increase in the underlying combined ratio. And then, what was the second question?

Jeff Klenk:

I think we wouldn't really give a projection on pricing going forward. I would say that given the healthy returns that we have in our portfolio, feel really very good about the 5 points of RPC that we got, the 90 points of RPC and you know that we're growing our new business. Thanks for the question.

Dan Frey:

90 points of retention.

Operator:

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

Greg Toczydlowski:

Hey, Ryan, this is Greg. For this particular quarter, we do have a stronger weight in the select business, particularly of workers' comp. And so, given the continued negative rate environment that we're seeing broadly across the workers' comp industry, the select business felt that in the first quarter. But again, I'll point out the strong RPC overall at 10% exposure was really robust. And as we've shared with you before, there's a meaningful portion of that, that does behave like rate.

Michael Klein:

Sure. Thanks, Ryan. I would say that as we continue to push rate and renewal premium change through the portfolio, we would anticipate some continued pressure. Again, not our primary focus. We're not wringing our hands over PIF growth at the moment. Our primary focus really is on improving profitability and the actions we need to take there. But we wouldn't be surprised if we see a bit of continued pressure on PIF as we continue to work to improve margins.

Operator:

Your next question comes from the line of Meyer Shields from KBW. Your line is open.

Jeff Klenk:

Sure. So Meyer, I think we're making strategic investments to maintain and extend our competitive advantages, and so -- and to make sure that we're investing in our future success. The two biggest buckets on that would be people and technology. And I'd point out why we continue to deliver attractive returns. A little more color on what that investment is would really be to develop and extend our flow underwriting capabilities in what I'd say are these traditionally higher touch management liability and surety lines of business. And again, that's all in the context of a reported combined ratio of 80%.

Dan Frey:

Yeah, Meyer, it's Dan. I'll take the PYD question. I think just a different dynamic. Umbrella and we talked about it a little bit last quarter. You're writing excess coverages in an environment of inflation, whether it's both the combination of sort of CPI, headline-type inflation plus the fact that social inflation never went anywhere. What you've seen is some more items pierce into those higher layers. So, not directionally inconsistent with the way we would have thought about it, but the magnitude of it was different, and we're just trying to react to that as we see the data come in. Just a different dynamic in terms of the management liability exposures that exist in the BSI book. And it just hasn't had the same crossover.

Dan Frey:

I would say that's true, yes.

Dan Frey:

Thanks, Meyer.

Elyse Greenspan:

Hi. Thanks. My first question, did you drop your workers' comp loss picks in the quarter?

Elyse Greenspan:

Sorry, I'm trying to get a sense of just how you booked the underlying year if you took down the picks and comp relative to where you were booking accident year 2022 and prior, on the current accident year?

Elyse Greenspan:

And then, in terms of personal auto, obviously, recognizing right, it's been a pretty hard environment in terms of loss trend for everyone. I had thought if in previous years, right, Q1 has at times been seasonally the best quarter when just looking at underlying combined ratios. You guys, obviously, have rate going to the system but that needs to earn in and trends remained high. Would you expect that same seasonality to persist that the other quarters of the year would be weaker on an underlying basis relative to the Q1? Or how should we think about the dynamics within personal auto?

Elyse Greenspan:

Okay. Thank you.

Yaron Kinar:

Good morning. Thanks for allowing me in. Two questions, if I may. One, on the Florida reform, I realize your market share in Florida is underweight or [netting in] (ph) small overall, but would you expect there to be an impact beyond personal auto, maybe in some commercial lines as well?

Yaron Kinar:

Okay. And then just on Slide 21 of the presentation on the real estate portfolio, again, realize high quality, relatively small. One thing that caught my eye is you said that the appraised values are meaningful -- meaningfully in excess of carrying value. I'm just curious how often the properties are appraised, or when were they last appraised?

Yaron Kinar:

Got it. Thanks so much.

Operator:

And I will now turn the call back over to Abbe Goldstein for some final closing remarks.

Operator:

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator:

Good morning, ladies and gentlemen. Welcome to the Fourth Quarter Results Teleconference for Travelers. [Operator Instructions] As a reminder, this conference is being recorded January 24, 2023. 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.

Alan Schnitzer:

Thank you, Abbie. Good morning, everyone and thank you for joining us today. We are pleased to report this morning a solid bottom line for the quarter, exceptional results in our commercial businesses, with higher full year core income and another quarter of attractive margins and strong growth, continued progress addressing the industry-wide loss pressures impacting the Personal Insurance business. Very strong production in all three of our business segments, resulting in consolidated net written premium growth of 10% for the quarter and another quarter of successful execution on the number of important strategic initiatives. Core income for the quarter was $810 million or $3.40 per diluted share, generating core return on equity of 12.3%. These results include $362 million of after-tax catastrophe losses. Core income benefited from record net earned premiums of $8.8 billion, up 10% compared to the prior year period. Our solid underlying combined ratio of 91.4% reflects very strong performance in both of our commercial segments. Looking at the two commercial segments together, the aggregate BI/BSI underlying combined ratio was an excellent 88.3% for the quarter. You will hear from Michael shortly about the progress we are making in Personal Insurance and the roadmap to improve profitability. For the full year, core income of $3 billion or $12.42 per diluted share benefited from higher core income in our commercial segments that was driven by record net earned premiums and strong profitability, including our best ever underlying combined ratio in Business Insurance. Our underwriting and investment results, together with our strong balance sheet enabled us to return nearly $3 billion of excess capital to shareholders, including more than $2 billion of share repurchases. At the same time, we grew adjusted book value per share and made important investments in our business. Turning to the top line, thanks once again to excellent execution by our colleagues in the field and the strong franchise value we offer to our customers and distribution partners. We grew net written premiums by 10% this quarter to $8.8 billion with all three segments contributing. In Business Insurance, net written premiums grew by 11% to $4.4 billion. Renewal premium change remained very strong at an historically high 10.1%. In the property line, which has received a lot of attention post-Ian, renewal premium change accelerated month-by-month in the quarter. Even with continued strong pricing across the board, retention in BI reached a record high 88%. As you have heard us say before, strong retention is a sign of a stable and rational pricing environment. New business in the segment of $558 million increased 10% from the prior year period. Given the attractive returns in the segment, we are pleased with the very strong retention of our high-quality book of business and the strong level of new business. In Bond & Specialty Insurance, net written premiums increased by 5% on a constant currency basis, driven by excellent production in our market leading surety business, where net written premiums were up 18%. Production was also strong in our management liability business, with renewal premium change of 6.3%, retention of 90% and new business, up 23% from a year ago. In Personal Insurance, top line growth was driven by higher pricing. Renewal premium change was meaningfully higher both year-over-year and sequentially as we continue to address the industry-wide loss pressure. Renewal premium change alone contributed more than $1 billion of written premium to our portfolio over the past year. With another quarter of impressive production in each of our segments, we feel very well positioned for the new year. You will hear more shortly from Greg, Jeff and Michael about our segment results. Our 2022 results cap off a decade of strong and consistent performance. We posted a double-digit return on equity in every year over the last decade with the exception of 2017, a difficult CAT year for the industry in which we posted a 9% ROE. In every one of those years, we comfortably covered our cost of equity. And over the last six years, we have significantly increased our rate of top line growth. We have accomplished all of this with industry low volatility. Successfully investing in differentiating capabilities has been a significant focus for us and an important contributor to our success. As you can see on Slide 24, over the past five years, we have meaningfully increased our overall technology spend. At the same time, through our strategic focus on productivity and efficiency, we have significantly reduced our expense ratio. In addition, we have improved the mix of our technology spend, increasing our spending on strategic initiatives by nearly 70%, while holding routine, but necessary expenditures about flat. The consistency of our results also benefits from the diversification of our business across our three segments. If we look back at the combined ratio over the last 10 years, in five of those years, Personal Insurance outperformed business insurance. In the other five years, Business Insurance outperformed Personal Insurance. And our Bond & Specialty business delivered spectacular results in every one of those years. The depth and breadth of our diversified businesses is a key advantage and would be very difficult to replicate. Speaking of our business profile, given the economic instability and geopolitical risk around the world, we feel very good about our concentration in North America, the largest, most advanced and most stable economy in the world, where we have the pole position and plenty of room to grow. With uncertain economic conditions ahead, I will also note we have a strong track record of performance through a variety of challenging environments over many years. We have got the experience, the know-how and the capabilities along with an efficient operating model and a rock solid balance sheet to manage through whatever comes our way. To sum things up, I am grateful to my more than 30,000 colleagues for all they have accomplished this year and over time. Given our strong foundation, our track record of successful innovation and our ambitious roadmap, we are very confident in the outlook for Travelers. With that, I am pleased to turn the call over to Dan.

Greg Toczydlowski:

Thanks, Dan. Business Insurance had another strong quarter rounding on a terrific year in terms of financial results, execution in the marketplace and progress on our strategic initiatives. We are firing on all cylinders. Segment income for the quarter was $725 million with an all-in combined ratio of 89.5%, both great results. We are once again particularly pleased with our exceptional underlying combined ratio, which was also 89.5%, an all-time best fourth quarter result. The underlying loss ratio increased by a little more than 0.5 point as the benefit of earned pricing was more than offset by the comparison to the prior year quarter, which benefited from both a particularly low level of property losses and the favorable impact associated with the pandemic. The increase in the underlying loss ratio was more than offset by a lower expense ratio that benefited from our ongoing strategic focus on productivity and efficiency. Net written premiums for the quarter were up 11% from the prior year quarter to a fourth quarter record of $4.4 billion, benefiting from strong renewal premium change, high retention and an increase in new business levels. Turning to domestic production for the quarter, renewal premium change was once again historically high at 10.1%, with renewal rate change of 4.5% and record growth in exposure. Retention reached an all-time high at 88%. New business of $558 million was the strongest fourth quarter we have ever produced. At the product level, in addition to what you heard from Alan about pricing in the property line, terms and conditions and the line tightened over the course of the quarter, further improving the price per unit of risk. While not reflected in our production metrics, this improvement in the price per unit of risk will contribute to our profitability over time. In workers’ comp, renewal rate change was a little more negative than we have seen in recent quarters, which is a reflection of the strong profitability in the line and the benefit of continued strong exposure growth. Overall, workers’ comp renewal premium change was positive in the mid single-digit range and actually a little higher year-over-year. We are pleased with these strong production results and the excellent execution by our colleagues in the field. Given our high-quality book as well as several years of segmented rate increases, together with improvements in terms and conditions, we’re thrilled to continue to achieve this historically strong retention levels. The pricing gains we achieved in the quarter reflect our deliberate execution, which balanced the persistent headwinds and uncertainty in the current environment with the improvement in profitability across our portfolio after several years of strong pricing. As always, we will continue to execute our granular pricing, careful management of deductibles, attachment points, limits, sublimits and exclusions to maintain profitable growth. As for the individual businesses, in select, both renewal premium change of 10.8% and retention of 83% were strong. New business was up 6% from the prior year quarter, driven primarily by the continued success of our BOP 2.0 product as well as growth in other lines. We’re pleased with the progress we’ve made in improving the profitability of this business over the last couple of years, while continuing to invest for future growth. In middle market, renewal premium change remained historically strong at 8.8%, while retention of 91% reached an all-time best. New business was up 13% from the prior year quarter. As for full year results, segment income of more than $2.5 billion was exceptional, benefiting from record earned premium in our best-ever underlying combined ratio. In addition, the top line of $17.6 billion and full year retention were both record highs, while new business premiums were near in all-time high. These results were driven by the successful execution of our thoughtful and deliberate strategies. And while delivering these financial and production results, we’ve also continued to invest in strategic capabilities that will enhance our many competitive advantages, designed to enable us to continue delivering profitable growth over time. For example, during the year, we advanced our already state-of-the-art product and service capabilities by continuing to roll out our BOP 2.0 product, which is now live in 46 states as well as launching our new commercial auto product in a handful of states. Both products contain industry-leading segmentation. In addition, we continue to make progress on developing industry-leading user experience capabilities to make it easier and more efficient for our distribution partners and customers to do business with us. In particular, in our middle market business, we advanced our capabilities around digitizing the underwriting transaction for our agents and brokers. And in our Small Commercial segment, we launched our new front-end rate quote and issue interface platform to make it faster and easier for our agents to write business with us, all while maintaining the underwriting discipline and specialization behind the scenes. And finally, we continued to improve our operating leverage through our relentless focus on productivity and efficiency, as I referenced earlier. I’ll note that our full year expense ratio of 29.7% is down more than 2.5 points from the 2016 level. We’re proud of these results and the team that produce them. With that, I’ll turn the call over to Jeff.

Michael Klein:

Thanks, Jeff, and good morning, everyone. In Personal Insurance, the fourth quarter loss of $61 million and a combined ratio of 105.3% were negatively impacted by the weather event in late December as well as elevated underlying loss activity in both automobile and homeowners and other. While our results aren’t meeting our target returns, we are encouraged by our strong marketplace execution as we continue to respond to the loss environment with both increased pricing and non-rate actions. Net written premiums for the quarter grew 13%, driven by double-digit renewal premium change in both domestic automobile and homeowners, reflecting our focus on improving profitability. In automobile, the fourth quarter combined ratio was 111.4%. As a reminder, while there is some seasonality in auto every quarter, the fourth quarter typically has an elevated loss ratio driven by things like holiday driving in Northeast winter weather. Over the last 10 years, the fourth quarter underlying loss ratio has been approximately six to 7 points above the average for the first three quarters. Seasonality aside, the underlying combined ratio of 110.5% increased 6.7 points from the fourth quarter of 2021, primarily related to the continued inflationary impact on vehicle replacement and repair costs, as well as increased claim frequency, which returns to pre-pandemic levels in the quarter and higher bodily injury severity. These loss impacts were partially offset by the growing benefit of earned pricing and a 1-point reduction in the expense ratio. Separately, the current quarter results included a modest impact for the reestimation of prior quarters. We continue to factor our latest view of loss experience into our pricing actions going forward. In Homeowners and Other, the fourth quarter combined ratio was 99.4%. This was 21.6 points higher relative to the prior year quarter, driven by catastrophe losses that were 13 points, 2 points higher than the prior year period and a higher underlying combined ratio. The underlying combined ratio of 82.2% increased 8.8 points. This increase was primarily driven by higher loss severity related to continued labor and material price increases as well as higher non-catastrophe weather losses. This loss pressure was partially offset by the current quarter benefit of earned pricing. Turning to production. Quarterly results reflect our rate and non-rate actions as we seek to manage growth and improve profitability. In domestic automobile, retention moderated this quarter as renewal premium change increased 3 points from the third quarter to 11.4%. New business written premiums declined 3% prior to the prior year compared to the prior year, and policies in force were essentially flat with last quarter as our additional rate and non-rate actions are taking effect. In domestic Homeowners and Other, we achieved renewal premium change of 14.5% in the fourth quarter. The retention remained strong at 84%. Slide 17 provides a graphical representation of renewal premium change in domestic automobile and homeowners and other. We added this view to highlight our progress with respect to renewal premium change over the last several quarters. The magnitude and speed of our pricing actions simultaneously across both lines of business is significant. As Alan mentioned, we have added over $1 billion of written premium to our portfolio in 2022 as a result of the high levels of renewal premium change. The benefits of this increased pricing will continue to earn into our results over time. Looking ahead to 2023, renewal premium change in both lines of business will increase above these already very strong levels as we continue to take action to improve profitability. Consistent with our comments last quarter, we expect written pricing in auto to be adequate in states representing the majority of our business by midyear 2023. In 2022, our team met a challenging environment head-on and took action to address rising costs. We are confident that the actions we have taken and will continue to take will drive improved profitability as we move through 2023 and beyond. Now I’ll turn the call back over to Abbe.

Operator:

[Operator Instructions] Our first question comes from Greg Peters with Raymond James.

Alan Schnitzer:

Yes, Greg, good morning. And thank you for the question. Let me just go back to basics and just talk about how we approach this business because we don’t approach it with a grower shrink mentality, we approach it with an overall approach to the marketplace. So we look at our business and we want to keep our best business, and you can see our retention this quarter was off the charts, which is a reflection of how we feel about that book of business. We want to improve the returns on the business that need it, and so we want to execute at a very granular, very thoughtful, very strategic level in terms of price and rate in RPC and then by investing in franchise value and through a lot of hustle in the marketplace. We want to make sure that we’re generating attractive new business opportunities. And we’re going to – we did that in ‘22 and the results have been fantastic. We’re going to do it again in ‘23, and we’re very confident about that. And let me spend just a second on the pricing environment because that seemed like it was part of your question, and I’ve seen a number of you write about it this morning. So I think it’s hard to characterize this pricing environment as anything other than very strong. At 10.1% that RPC is spot on an eight-quarter average. So incredibly stable and near record levels. Small movements between pure rate and exposure, but I would emphasize small movements between rate and exposure. The breadth of the pricing gains across our book is very strong and very consistent. I don’t think you can assess the pricing environment without looking at retention and given where that is literally record levels and given the profitability very strong. The pricing gains that we achieved were broad-based, led by property, auto, umbrella and CMP. And then you take all that against the margins that we printed and we just – we feel fantastic about the pricing and the overall execution this year. And again, we’re going to go out and do it again in ‘23.

Alan Schnitzer:

Yes. Again, we’re executing at a very granular level, looking at what it is we need to do by account. And you look at that 10.1% overall renewal premium change, very strong near-record levels. And the fact that there is a little bit of movement back and forth between rate and exposure to us almost inconsequential. So you can look at that 0.5 point of change in isolation and try to make something out of it. We look at the overall production picture, and it just looks fantastic. So – and again, Greg made a really important comment in his remarks, which is we’re – the execution you see is balancing a bunch of things going on. On the one hand, there is headwinds and some uncertainty. We’ve got inflation in the marketplace, supply chain is – hasn’t returned to pre-pandemic levels. We’ve got weather volatility. We’ve got reinsurance. We’ve got social inflation we’ve talked about over the years. So on the one hand, that continues to be a headwind for us, and we take that into account. But on the other hand, we’ve got a bunch of years of very strong pricing and look at where the margins are today. So the rate change of 4.5% and the overall RPC doesn’t happen to us. That’s a very deliberate execution on our part, taking into account everything that we see in front of us.

Dan Frey:

Hey, Greg, it’s Dan. So I don’t think anything terribly surprising. And I guess I’d step back and look at reserve development over the course of 2022 and say, full year number, $650 million of favorable reserve development. Of course, there are some lines that are going to develop a little better and some that are going to develop a little worse, but $650 million over the course of the year, favorable development in all three segments of the business. Umbrella, not really different than our overall thesis, but sort of the degree to which severity moved was a little more than we expected. So as we usually do, we’re trying to look at the data as quickly as possible and react as quickly as possible and all of that inside of a net favorable PYD. So we’re feeling very good about where the balance sheet is.

Ryan Tunis:

Hey, thanks. First question, just around the excess capital position. Historically, the company has been able to easily return operating earnings and in some years, even more than debt of shareholders. We’ve never seen this level of first of all, exposure growth and also just seeing the retention go up on the property CAT Treaty, are we at a point yet where I guess the growth and the risk of the business could start to impact capital return decisions?

Ryan Tunis:

Got it. And then a follow-up for Michael, just thinking about the rate you are taking on the homes side, is there a way to kind of compartmentalize that in terms of how much of the rate is toward attritional type losses versus how much is budgeting for higher caps? I am not sure if there is, but I would be curious if you had any perspective on that?

Ryan Tunis:

Thank you.

David Motemaden:

Thanks. Good morning. Michael or actually, Dan, sorry about that. Dan, could you just elaborate a little bit more on the financial impacts of non-renewing the aggregate reinsurance outside of a higher potential catastrophe load? I think when you put it on, there was a 50 basis point headwind to the underlying combined ratio, which obviously was offset by lower CAT load, but that was back in 2019, so I am sure it’s changed. It doesn’t sound like you expect a noticeable impact on the property loss ratio or the total company expense ratio. So, just wondering if you could just sort of talk through the puts and takes of non-renewing that aggregate?

David Motemaden:

Got it. And then just following up on that, is that something and you also mentioned just the relative cost of goods sold advantage from buying less reinsurance. Does that benefit something you are looking to price or just allow to flow through in pricing as opposed to falling to the bottom line just based on your commentary, it sounds like that might be the case, but maybe elaborate on that as well.

David Motemaden:

Got it. Thank you. And then coming back to Michael, just wondering, I think in the past, I have heard you guys talk about mid-90s combined ratio in auto. And you said you thought you could get to written rate adequacy still by ‘23. Maybe just one, is that still the right combined ratio to think about you guys are targeting? And then any sort of view on timing of when you think you can get there?

David Motemaden:

Great. Thank you.

Elyse Greenspan:

Hi. Thanks. Good morning. Michael, maybe picking up on your last comment, I mean you say that you guys are going to reach within rate adequacy in personal auto. So, what are you guys assuming for frequency and severity from here when you make that comment?

Elyse Greenspan:

Then on the reinsurance program, can you give us a sense of – an absolute sense of how much your reinsurance costs went up? And then on the capital side, as you guys have added more volatility right by retaining additional CAT losses in ‘23, how could that affect your capital allocation? Should we expect lower buyback in the second quarter and third quarter? And could this even impact the excess capital that you would have for new business growth?

Elyse Greenspan:

Thank you.

Meyer Shields:

Thanks. Good morning all. A quick question on, I guess the quota share arrangement. Can you talk about – and I am putting this as binary, and it’s probably not. But can you talk about why Travelers is going through sort of quota share arrangements to capitalize on the hard property market as opposed to your own excess and surplus science paper?

Meyer Shields:

Okay. No, that makes sense. And then a quick question for Michael. You talked a little bit about, I think un-quantified the impact of accident year ‘22 loss take increases in the fourth quarter, did that change have a meaningful impact on the indicated rate need?

Meyer Shields:

Okay. Prefect. Thank you.

Alex Scott:

Hi. Good morning. I had one follow-up on the personal auto. We saw a peer of yours that’s had severity sort of picking up maybe faster than they even were expecting earlier in the year and as well as bodily injury that’s sort of being settled at this point. Just wanted to see, is that something you have looked at harder in your book, how confident are you that you are fully capturing the severity in the way you are reserving on the auto? Do you feel comfortable with where that is headed into 2023 and the starting point here?

Dan Frey:

Alex, it’s Dan. Just in terms of the balance sheet, I think we made this comment last quarter as well. We were pretty consistent in 2020 and 2021 in saying that we felt we were being appropriately cautious in allowing for the elevated level of uncertainty in the environment at that time when we were making our loss picks, including in personal insurance. And I think that’s continued to proven to hold up. As Michael said, our expectation was always that bodily injury severity, not only was elevated, but the trend slope was upward moving on that. And so I think when you take into consideration the fact that we were sort of intentionally reflecting an elevated level of uncertainty in ‘20 and ‘21 and trying to continuously react to the most recent data as it comes in to this point all the way through the end of 2022, our reserves for prior years have held up just fine.

Alan Schnitzer:

Yes. Alex, let me start, and I will look at Greg, if I missed something here. So, renewal price change was mid-single digits positive, as you heard from Greg. Given the durations of the liability, we take a pretty cautious view on how we think about loss trend and the outlook for that. And so you would say pricing is a little bit positive, you would say loss trends negative. And the net of those two things would probably be a little bit negative as we think about next year. I think the question is going to be what’s loss trend going to do because it has – over the last few years or more than that surprised us to the benign side. And so we will just have to see where the losses come in and then take a look at the calendar year results. But again, I would just say workers’ comp has been a fantastic line for us. And we think the outlook for it is positive as well.

Operator:

Our next question comes from Yaron Kinar with Jefferies.

Alan Schnitzer:

I don’t think that’s where I would go Yaron on that. Tell me what you would look at that would lead you to look for a lower aggregate loss ratio?

Dan Frey:

Yes. I think you are really talking on the margins. I don’t think we are very – we are significantly changing the mix of the property book we write in terms of what its cat-exposed profile is. Fidelis, again, at those levels and a portion of what they write is going to be cat-exposed. But at that level, that’s going to have a very small impact on our overall base of premiums. We look at the CAT results over the last few years. And I think like everyone sort of continually update our view of – and for us, it’s importantly – it’s weather losses, not just what falls into the catastrophe bucket, right, because we have got sort of a more restrictive definition of what CAT is than most other folks. But it’s really not a significant change. So, we don’t see a significant change in the relative percentage of the book that’s CAT exposed. We don’t see a significant change despite some changes in reinsurance, I would describe those changes in reinsurance relative to the property book as a whole as pretty modest. So, I don’t think it dramatically changes our CAT profile. So, I don’t really think it’s going to have a significant impact on the way we think about the property book going forward.

Michael Klein:

Yes, Yaron, it’s Michael. I think to your question, we did have a modest impact from re-estimation of prior quarters. And I talked about the auto physical damage, the frequency and the bodily injury as the drivers of the period-to-period change. There was really some prior year re-estimation sort of across a number of factors in the book, but again, it was modest.

Michael Klein:

Yes. I mean it was, I would say, about a point, a point or two points kind of – and again, it varied a little bit by coverage, but call it around one point or so.

Operator:

That concludes the Q&A session. I now turn the call over to Ms. Goldstein.

Operator:

Good morning, ladies and gentlemen. Welcome to the Third Quarter Results Teleconference for Travelers. [Operator Instructions]. As a reminder, this conference is being recorded on October 19, 2022. 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.

Alan Schnitzer:

Thank you, Abbe. Good morning, everyone, and thank you for joining us today. I'd like to start by acknowledging the devastation and loss of life caused by hurricanes Ian and Fiona. We're thinking of all those who have been impacted and are supporting the Red Cross's disaster relief efforts. In addition, as always after events like these we're focused on taking care of our customers. We're on track to meet our objective of resolving 90% of our property claims arising out of the storms within 30 days. My thanks to all our claim colleagues who are working hard to make that happen. Moving to our results, we're pleased to report this morning a solid bottom line for the quarter particularly in light of the significant industry wide catastrophe losses. Strong and improved underwriting profitability in our commercial business segments. Progress addressing the environmental headwinds facing the personal insurance industry. A meaningful contribution from net investment income, including positive returns from our alternative investment portfolio, notwithstanding the challenging equity market. Very strong production in all three of our business segments, resulting in strong growth in net written premiums, and another quarter of successful execution on a number of important strategic initiatives. Core income for the quarter was $526 million, or $2.20 per diluted share, generating core return on equity of 7.9%. These results benefited from record net earned premiums of $8.6 billion up 10% over the prior year quarter, and a solid underlying combined ratio of 92.5%. The nine months core to non-equity was 10.9%. Given the challenging environmental issues impacting the personal insurance industry, these consolidated results once again demonstrate the benefit of our diversified portfolio of businesses. We're particularly pleased with the continued strong underlying results in our commercial businesses. Looking at the two commercial segments together, the aggregate BI-BSI underlying combined ratio was an excellent 88% for the quarter. As expected results in personal insurance were impacted by elevated severity in both auto and home. As you'll hear from Michael, we're continuing to make progress addressing the environmental loss cost issues. In terms of catastrophe losses, as I've described before, strategic efforts we have undertaken in recent years have enabled us to more effectively manage our exposure to catastrophes and more efficiently mobilize our claim response. And while there is always the potential for us to have outsize exposure to an event, those efforts contributed to losses for us from hurricane Ian that based on current estimates are favorable relative to our corresponding market share. That's consistent with our experience over the past five years. Odd share of the industry's property CAT losses over that period has been meaningfully lower than our corresponding market share. Our capabilities position us well for a kind of increasing frequency and severity of losses from natural catastrophe. Turning to investments. Our high quality investment portfolio generated net investment income of $505 million after-tax for the quarter, reflecting high returns from our fixed income portfolio and positive returns in our non-fixed income portfolio. Our strong operating results over the past few quarters together with our solid balance sheet enabled us to grow adjusted book value per share by 7% over the past year, after making important investments in our business and continuing to return excess capital to shareholders. During the quarter, we returned $722 million of excess capital to our shareholders, including $501 million of share repurchases. Turning to the top line. Thanks to excellent execution by our colleagues in the field and the strong franchise value we offer to our customers and distribution partners. We grew net written premiums by 10% this quarter to a record $9.2 billion. In business insurance net written premiums grew by 9%. Renewal premium change was very strong at an historically high 10.2%, while pure renewal rate change of 5% was higher than in the first half of the year. Retention remained very strong at 86%. And new business increased 9% in the prior year period. Underneath the headline numbers, execution in terms of rate and retention at a segmented level continued to be exceptional. In Bond & Specialty Insurance net written premiums increased by 8% driven by excellent production in both our surety and management liability businesses. Surety net written premiums were up 18%. Management liability premiums were up 4%, driven by renewal premium change of 9%, retention that increased to 89% and 20% growth in new business. In Personal Insurance, renewal premium change was meaningfully higher both year-over-year and sequentially as we continue to address the environmental headwinds. You'll hear more shortly from Greg, Jeff and Michael about our segment results. Before I turn the call over to Dan, I'd like to comment on a public policy issue. Hurricane Ian puts a spotlight on the troubled condition of the Florida insurance market. Other states may be headed for similar challenges. As policymakers consider how best to address the availability and affordability of insurance, we would urge them to consider the impacts of the unhealthy tort environment, fraud and abuse by a few that impact too many and regulatory practices that undermine free market principles. I believe those factors are at least as consequential as the weather itself to the industry's ability to provide our communities with effective and efficient ways to manage risk. We're looking forward to being a participant in constructive conversations about solutions in the days ahead. Something's up building on our strong results so far this year, we're confident about our outlook. Our commercial lines businesses are generating terrific results for achieving meaningful price increases in personal lines. And our high quality investment portfolio is poised to generate meaningfully higher levels of fixed income NII going forward. When we combine that and the success we've had with our performance transform called action. We're very confident in our ability to continue to create shareholder value over time. And with that, I'm pleased to turn the call over to Dan.

Gregory Toczydlowski:

Thanks, Dan. Business Insurance had an excellent quarter with segment income of $471 million. We're particularly pleased with our exceptional underlying combined ratio, which improved to 90% for the quarter. This result is a testament to our execution and focus on achieving our target returns. The underlying loss ratio increased by about a point as the benefit of earned pricing was more than offset by the comparison to both the low level of property losses and the favorable impact associated with the pandemic in the prior year quarter. The increase in the underlying loss ratio was more than offset by a lower expense ratio that benefited from our ongoing strategic focus on productivity and efficiency. Net written premiums of $4.4 billion were up 9% over the prior year quarter, with growth in all domestic markets and lines of business. Premiums benefited from strong renewal premium change and retention, both of which were once again historically high, as well as higher levels of new business. Turning to domestic production for the quarter, renewal premium change of 10.2% was once again exceptionally strong. RPC included renewal rate change of 5%, a tick up from the second quarter and strong exposure growth. Retention remained very strong at 86% and new business premium was more than $500 million, up 9% over the prior year. We're pleased with the strong production results and the excellent execution by our colleagues in the field. Given our high quality book, as well as several years of segmented rate increases, and improvements in terms and conditions, we're thrilled to continue to produce historically strong retention levels. The rate gains we achieved in the quarter reflect our deliberate execution, which balanced the persistent headwinds and uncertainty in the current environment with the improvement in profitability across our portfolio after several years of strong pricing. As always, we'll continue to execute our granular pricing, careful management of deductibles, attachment points, limits, sub-limits and exclusions to maintain profitable growth. As for the individual businesses, in Select, renewal premium change remains healthy at 10.6%, while retention of 83% was up two points from the prior year quarter. New business was up 8% from the prior year quarter, driven by the continued success of our BOP 2.0 product. In middle market, renewal premium change remained very strong at over 9%, while retention was higher year-over-year and sequentially at an excellent 89%. New business premium of $271 million was up 5% over the prior year. To sum up, Business Insurance had another terrific quarter. We're pleased with our execution and driving strong financial results while continuing to invest in the business for long-term profitable growth. With that, I'll turn the call over to Jeff.

Michael Klein:

Thanks, Jeff and good morning, everyone. For the third quarter, Personal Insurance reported a combined ratio of 107.2% up approximately two and a half points compared to the prior year quarter, primarily driven by a higher underlying combined ratio. The four point increase in the underlying combined ratio reflects the continuing environmental challenge of elevated loss severity in both automobile and homeowners. The loss impacts were partially offset by a two point reduction in the expense ratio. For the quarter, catastrophe losses were $285 million and included losses from Hurricane Ian, most of which are Florida automobile losses. Catastrophes were two points lower than the prior year quarter, which included Hurricane Ida. Net written premiums for the quarter grew 13% primarily driven by very strong price increases in both domestic automobile and Homeowners & Other. In automobile, the third quarter combined ratio was 112.2%, including nearly eight points of catastrophe losses. The underlying combined ratio was 103.9%, an increase of 6.9 points relative to the prior year quarter. The increase reflects another quarter of elevated vehicle replacement and repair costs, and to a lesser extent the continued return toward pre-pandemic driving and claim frequency levels. Our primary response to these environmental challenges is higher pricing. We were pleased with our progress this quarter building out our actions to increase rates over the past few quarters. While pricing continues to gain momentum, it will still take some time for rate actions to fully earn into our results. In Homeowners & Other, the third quarter combined ratio was 102.3% and improvement relative to the third quarter of 2021 as catastrophe losses in property were lower. The underlying combined ratio of 94.9% increased about a point and a half from the prior year quarter. We continue to experience higher loss severity related to a combination of labor and material price increases in the quarter. But that loss pressure was largely offset by the current quarter benefit of earned pricing, lower non-catastrophe weather losses and a lower expense ratio. Turning to quarterly production, we continue to make excellent progress and achieving pricing increases. I'll discuss Homeowners & Other production first this morning before spending a bit more time on automobile. For Domestic Homeowners & Other, renewal premium change increased to 14.1% and retention decreased slightly to 83% both consistent with our expectations. We expect renewal premium change to continue at these levels for the remainder of 2022. Looking ahead to 2023, we expect renewal premium change to increase above these already very strong levels, as we implement additional insured value increases. For domestic automobile, renewal premium change increased to 8.1%, while retention was 83% also consistent with our expectations. During the quarter, we implemented price increases in 26 states at an average of about 8.5%. We expect that domestic automobile renewal premium change will get into double-digits in the fourth quarter and be in the mid-teens throughout 2023. Written pricing should reach adequacy in most states representing the majority of our business between now and mid-2023 and that pricing will earn into our results over time. In addition to increased pricing, we're also implementing additional non-rate actions, including further tightening underwriting criteria, restricting binding authority for certain agents in certain states, and removing our auto product from comparative riders in California and Florida. These actions will help us manage growth and improve profitability. Personal Insurance has a strong track record of financial performance demonstrated by over 40% net written premium growth and 97% combined ratio for the five-year period from 2017 to 2021. While we and the industry continue to face near-term environmental headwinds, we remain confident in our ability to deliver attractive returns over time, while continuing to build the business for the future. Now I'll turn the call back over to Abbe.

Operator:

[Operator Instructions] Your first question comes from the line of Greg Peters from Raymond James. Your line is open.

Dan Frey:

Sure, Greg. It's pretty broad based and it's sort of the continuation of the theme that we've seen, really now for the past three, or four, or even five years of making important investments in strategic initiatives. At the same time, we focus on productivity and efficiency, and grow the top line in all three segments. So what you see is just a consistent pattern of expense increases at a rate that's well below the rate that we're growing, growing the top line. In terms of, whether we expect that continue or providing outlook going forward, we'd said probably a year and a half ago or so that we've gotten down to 30. And we were pretty comfortable at that level, then we said we got down to 29. And we were going to be pretty comfortable with that level. At 28.7 on a year-to-date basis, I'd still put that in the around 29 bucket. As Alan has talked about many times what we liked about our focus on productivity and efficiency and expenses is it gives us optionality, we can continue to make important investments, which we will, we could let it drop to the bottom line, we could reflect it in more competitive pricing, and there's no reason for us. And we're not going to declare at this point, what we think that's going to look like next year or a year or two out. So I'd suffice it to say that in the 29 neighborhood is a number that we're still pretty comfortable with and 28.7 through the first nine months feels really good.

Dan Frey:

I think Greg, too early to say. We'll talk about the one-one renewals when we know how things turned out, which we'll do probably at the -- in the fourth quarter call. I like the point of the comments today, we're really to just reinforce for folks that one, we're not a big user of reinsurance, especially relative to some other parts of the market; and two, our track record and our long tenure with a lot of our trading partners, as is pretty confident that we're going to be able to place what we want to place at appropriate prices, the CAT aggregate XOL treaty, specifically, we've said -- I think we've said, every year we had it. We'd either buy it or not, depending on what we thought the pricing level was relative to our own appetite. And you've seen us place anywhere from 55% of that treaty to 85% of that treaty, depending on the pricing environment. And if there's a year where we decide to not place any of it, we'll be perfectly fine with that. But that's a decision we'll make as we go through the renewal process.

Gregory Peters:

Makes sense. Thanks, Alan.