Chubb Limited

Good day, everyone, and welcome to the Chubb Limited Third Quarter 2019 Earnings Conference Call. Today's call is being recorded. Later, we will conduct a question and answer session. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. And now, for opening remarks and introductions, I would like to turn the call over to Karen Beyer, Senior Vice President, Investor Relations. Please go ahead, ma'am.

Thank you, and good morning, everyone. Welcome to CHUBB's September 30, 2019 Third Quarter Earnings Conference Call. Our report today will contain forward-looking statements, including statements relating to company performance and growth opportunities, pricing and business mix, and economic and market conditions, which are subject to risks and uncertainty, and actual results may differ materially. Please see our recent SEC filings, earnings release, and financial supplement, which are available on our website, at investors.chubb.com for more information on factors that could affect these matters. We will also refer today to non-GAAP financial measures, reconciliations of which to the most direct comparable GAAP measures and related details are provided in our earnings press release and financial supplement. Now it's my pleasure to introduce our speakers this morning. First, we have Evan Greenberg, Chairman and Chief Executive Officer, followed by Phil Bancroft, our Chief Financial Officer. We'll then take your questions. Also with us to assist you with your questions are several members of our management team. And now I'll turn the call over to Ed.

Good morning. We had a strong third quarter with core operating earnings up double digit and excellent premium revenue growth globally. Growth benefited from a continuously improving pricing and underwriting environment where insurance rates and terms continued to firm quarter over quarter in major areas of our business. Our growth is also benefiting from our many product, customer, and distribution-related growth initiatives around the globe, particularly in the U.S., Asia, and Latin America. Core operating income was $2.70 per share, up 12%. The balance of our earnings between underwriting and investment income was very good, with underwriting income of $754 million, up 12.5%, and adjusted net investment income of $9.10, up 3%. Global P&C underwriting income, which excludes agriculture, was up 27.7%. The combined ratio benefited from lower year-on-year ratio by higher crop losses, another cat-like On a current accident year basis, excluding CATS, the combined ratio was 89.5. And excluding AG, it was 88.3, up modestly like four years. Book and tangible book value per share were up 2% and 3.3% and are up 9.8% and 15.7% since December 31. driven by a combination of strong income and the mark from falling interest rates. While benefiting temporarily our company's book value growth, prolonged low interest rates, a result of over-reliance on monetary policy, have penalized savers and led to misallocation of capital and overvaluation of assets without substantially supporting business investment and economic growth. Annualized core operating return on equity for the quarter was 9.5%. So we'll have more to say about investment income, book value, CATs, and prior period development. Turning to growth and the rate environment, PNC premium revenue in the quarter in constant dollars was quite strong. Net premiums grew 7.2%, and then foreign exchange had a one-point negative impact. As I noted at the beginning, the pricing environment continued to improve quarter on quarter, with the rate of increase accelerating and spreading to more classes of business and risk type. For perspective, rate increases in both our North America commercial lines and on our London wholesale businesses this quarter were double those of the first quarter, 6.4% versus 3.2%, and 17% versus 8% respectively. In the U.S., rates continued to firm in major accounts, E&S wholesale specialty, and the middle market. In our international operations, we continued to observe firming conditions in the London wholesale market and in Australia, while rates began to increase in the U.K. retail market and parts of the continent, particularly for large risks. The market is responding to the fact that rates have not kept pace with lost costs over a number of years, which has put pressure on margins and ultimately on reserves. Rates have gone down while lost costs have risen. Pretty simple math. However, as we have been saying for some time, the frequency of severity in certain long-tail and short-tail classes has been worsening while at the same time in other classes, it has remained subdued or declined. For the sake of simplicity, let's divide long tail loss into three buckets. Bucket one, generally speaking in the attritional loss layers, severity has been increasing at a relatively modest pace and frequency has been steady, though there are exceptions. In the second bucket, in excess, claim settlements has been increasing and putting pressure on rate adequacy, a consequence of so-called social inflation, but also casualty attachment points not moving for years. A $1 million attachment point for casualty excess 10 years ago is worth a fraction of the amount today. And finally, the third bucket, there has been an increase in class actions, large to mega, everything from securities and antitrust related to science-based, for example, chemical, pharma, and physical trauma related. And there are casualty cat-type events, such as molestation-related reviver statute legislative actions. I have spoken about all of this for some time now. In my judgment, given the simple math, the risk environment, and a reset of risk appetite on the part of many, the current market conditions are sustainable. Returning to the quarter, overall prices increased in North America commercial on a written basis by 6.8% versus a lost cost trend of about 4.5%. Renewal price change of 0.4% and exposure change of 0.4%. As I noted last quarter, We are also benefiting from a flight to quality, particularly in large account and specialty, as more business meets our underwriting standards. Given the choice, many potential customers prefer Chubb. New business in North America commercial lines was up 18.5% in the quarter, with major accounts and specialty up over 23%, and middle market and small commercial up over 9.5%. Retention of our customers remained very commercial and personal PNC businesses, with renewal retention as measured by premium of 96.6%. In major accounts and specialty commercial, excluding agriculture, premiums were up 9.5%. With major accounts retail up about 5.5%, and East E&S wholesale up over 18%. Rates for major accounts were up over 8%, with risk management up 4.5%, excess casualty up 17.5%, and property up over 29%. Public D&O rates increased over 17.5%. In our E&S wholesale business, rates were up about 7.5%, with property up 17%, and financial lines up 8.5%. Turning to our middle market and small commercial business, premiums overall were up 5.6%, and renewal retention in our middle market business was 92%. Middle market pricing was up over 6%, and excluding workers' comp up about 6.5%. Pricing for primary casualty was already up 7.3. Excess umbrella up 7%. And public D&O rates up 32%. In our North America personal lines business, net premiums written in the quarter were up 2.7%. But adjusting for the expanded reinsurance, net premiums written were up almost four. Our best quarter of the year. Retention remained strong at 97% on a premium basis and steady at over 90% on a policy basis. Homeowners pricing was up 10.7% in the quarter. Turning to our international business, growth accelerated in our overseas general insurance operations with net premiums written up about 11% in constant dollar. And FX then had a negative impact of about three and a half percentage points. Net premiums for our London market wholesale business were up 29%, while our retail division was up over nine and a half, with growth broadly distributed across the globe. Growth in our international retail business was led by Latin America and Asia Pacific, up circa 10% and 9% respectively, with UK retail in the continent up over 8% and 6%, a very good result. Overall rates in our London wholesale business were up 17%. Our Asia-focused international life insurance business had a strong premiums up over 20% in constant dollar and a contribution to earnings of $40 million, up over 43% from prior year. John Keogh, John Lupica, and Paul Crump can provide further color on the quarter, including current market conditions and pricing trends. In closing, this was a very good quarter for CHOP. Premium revenue growth continued to accelerate as more business met our underwriting standards, and we continued to achieve greater price adequacy in an improving underwriting environment. At the same time, long-term growth initiatives around the globe. Our organization is firing on all cylinders. With that, I'll turn the call over to Phil, and then we'll come back to take your questions.

Thank you, Evan. We ended the quarter with a very strong overall financial position. Our businesses and investment performance produced positive cash flow in the quarter of $2.2 billion. We grew our assets to $175 billion. including cash and invested assets of $109 billion, which generated strong investment income. And we grew total capital to over $68 billion. Among the capital-related actions in the quarter, we returned $819 million to shareholders, including $341 million in dividends and $478 million in share repurchases. Year-to-date through yesterday, we have repurchased over $1.3 billion in shares $5.70 per share. Our annualized core operating return on tangible equity was 15.6%. Adjusted net investment income for the quarter of 910 million pre-tax was higher than our estimated range and benefited from higher private equity distributions and increased corporate bond call activities. Net realized and unrealized gains for the quarter were $263 million after tax. There was a gain of $503 million in the investment portfolio from a decline in interest rates, partially offset by a loss of $112 million from our variable annuity portfolio and a loss of $116 million from FX. Although market yields have declined significantly in recent months, we will remain conservative in our investment strategy and do not contemplate any significant shift in asset allocation. Despite the negative impact of lower interest rates, we expect our growth in invested assets and strong cash flow will support current investment income levels. We now expect our quarterly adjusted net investment income run rate to be approximately $900 million. The next catastrophe losses in the quarter were $232 million with about 90% from U.S. weather-related events, including Hurricane Dorian, and a balance from international events, primarily in Japan. In addition, agriculture underwriting income was adversely impacted by weather conditions, resulting in underwriting income of $1 million compared to $79 million in the prior year. We had favorable prior period development in the quarter of $167 million pre-tax or $112 million after tax. This included $27 million pre-tax adverse development related to legacy environmental exposures. The remaining favorable development of $194 million comprises $279 million favorable development from long-tail lines, principally from accident years 2015 and prior, and in short-tail lines, principally from non-CAT large losses commercial property lives. On a constant dollar basis, net loss reserves decreased 137 million, reflecting the impact of favorable prior period development and catastrophe loss. On a reported basis, the paid-to-incurred ratio was 103 percent for the quarter. After adjusting for the items I discussed, the paid-to-incurred ratio was 96. Our core operating effective tax rate for the quarter was 15.1%, which is in line with our annual expected range of 14 to 16%. Through nine months, our core operating effective tax rate was 15%. As a clarification to a point in the press release relating to North America commercial, we had a two point increase in our loss ratio. One point is property related. year-to-date losses were higher than our selected loss ratio. The other point is long-tail related, simply higher loss fixed this year than last and in line with previous quarters, no change. I'll turn the call back over to Karen.

Thank you. At this point, we're happy to take your questions.

Thank you. Ladies and gentlemen, to ask a question, please signal by pressing pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, press star one. We'll take our first question from Paul Newsome. Samuel O'Neill, please go ahead.

Good morning. I was hoping you could touch a little bit more on your comments on the tort environment, which I found very interesting. And specifically, I'm curious if the buckets and descriptions you're using are just attributed to the U.S. or, you know, given your international focus, it's also something we can think about having similar issues in or developments in the international markets.

Yeah. That's a good question. And good morning, Paul. The securities related. And We don't see it in general casualty. General casualty is behaving in a steady way. We don't see the same factors that we see in the US. However, in securities related, so in D&O, the UK, Germany, which has always been a troubled environment, and Australia, There you see the same trends. And in a place like Australia, it's even more acute. But that's been for some time. And I've been talking about it for a while because it's the same. We've observed the trends for the last couple of years. The U.K. has worsened over the last two years, maybe three. Australia has been – it began deteriorating about four years ago. and accelerated and is just a stupid environment now. And Germany, given they're insured versus insured, and the fact that you have two boards in a company, has been a difficult environment for a long time. But that's about it. The other markets around the world, kind of minor.

And then separately, just a more topical comment on the California wildfires and exposures. Is there anything about Chubb's exposures out there that would be different from the last couple of years, just from an exposure or from a reinsurance perspective?

Well, let's see. The last couple of years, we do have a quota share that we did not have before. That would be the one major difference. Over the last year in particular, though it began two years ago, but really it's been the last year, we've been reshaping the portfolio. Given the underwriting environment and the level of rate we can charge, we've aggressively pursued more rate increase. You know, that earns into the portfolio and has a benefit. And we've reshaped the portfolio around the margin, and that continues, particularly in extreme wildfire zones.

Great. Thank you. Congrats on the quarter.

Thanks a lot.

Our next question will come from Elise Greenspan with Wells Fargo. Please go ahead.

Hi. Good morning. My first question, Evan, going back also to some of your comments on inflation. You know, in North America commercial, you guys, you just, you know, pointed to consolidated trend about four and a half, which, you know, is in line with, you know, what you guys have been saying the past couple of quarters. So just given, you know, the whole environment in terms of, you know, class action lawsuits, et cetera, picking up, I mean, do you view that as, you know, kind of the right base to you know, as we think about where a trend could be, you know, over the next 12 months?

Elise, our trend reflects everything we know. And we have, and it's the overall portfolio. So that's everything, long and short tail. We have classes in long and short tail where the lost cost trend is benign. And we have in both long and short tail classes where it is less benign. And I specifically spiked out to talk about the casualty. I'm using casualty in the broad sense, including professional lines. The areas where we for some time have been talking about that loss cost trends or the strike loss cost trends. the loss environment has been worsening, becoming more hostile. That's all baked into that 4.5%. Our selected trend factors by line reflect everything we know that we can mathematically calculate is and substantiate is in our loss picks. Now, we can't speak about the future because we don't know the future. We only know what we can observe today and the trends as we see them today, and we've reflected all of that.

Okay, that's helpful. In terms of North America commercial markets, The prior year development slowed. I believe it's all due to what Phil pointed out in terms of the non-CAT losses in commercial property. I just wanted to clarify, so did all, away from just non-CAT property, did all their lines within commercial develop favorably in the quarter? If we can just get a little bit more color on that reserve releases within that business.

In the current accident year, you're speaking to current accident year?

No, I was talking about the prior year development, so the 109 this year versus a North America commercial.

We had releases and we took reserve charges, as we told you. And when you say lines, it's the lines that we study in the quarter. We don't do a deep dive study on all lines every quarter. And as we've described numerous times, we have a schedule for that. And so of the lines studied in the quarter, those would be the long tail ones that had releases. And by the way, it's many sub lines. And so some have some increases, some have decreases, but the aggregate that we gave you was was a decrease.

Okay. Thanks for the color.

Next question from Greg Peters with Raymond James. Please go ahead.

Good morning. I have one question and a follow-up. Evan, in your prepared remarks, and I'm not trying to put words in your mouth, but I believe you suggested that assets might be overvalued due to the low interest rate environment. And I'm curious how you want your investors to view those comments in the context of your investment portfolio?

Yeah, what I was really relating to more than anything in my mind is, you know, I look at the prices people are paying to buy assets. All kinds of assets. And You know, in my mind in particular, I think about is we purchase insurance companies, and we look at those assets, and I find the market knows to be tremendously overvalued. And when I look at the prices being paid and so much private equity, and I'm in IT related and technology related, the asset values are tremendously inflated. And really making the comment that investors are chasing absolute risk-adjusted yield. When I come to our own investment portfolio, we're very careful about how we invest for risk-adjusted return, not absolute yield. That's why Phil made the comment that there won't be and you won't see a change in our investment philosophy and strategy because we're disciplined and we're not just going to chase the highest yield, for example, in high-yield bonds where we're active. You know, we know what we think the right risk adjusted price is. I'm looking at historic default trends, et cetera. We're not going to chase. And that's what my comments were related to.

Excellent. Thanks for the clarification. I want to pivot. And at the outset, I just want you to realize I'm not trying to get you to criticize your distribution partners. but if I consider the stock market performance as a measure of success, the insurance brokers have outperformed the underwriters on a one, three and five year basis. And I was wondering if you could just update us on your views about the symbiotic relationship with your insurance brokers and, or if it's changed.

Yeah. You know, um, that bounces around and, um, You know, we're in the risk-taking business. Brokerage is in the intermediation business only. And I realize we're both in the advisory business that way. That they have done well, it's not a zero-sum game. That they have done well, I applaud them for it. I reflect they've done a good job. And congratulations. And we'll run our own race. And I'm not concerned with Chubb's ability to outperform over reasonable periods of time. And that's particularly in comparison to those who are like us, risk takers. Secondly, has the relationship changed? No, it's fundamentally the same relationship. It has been for years it changes based on you know tools and capabilities change but beyond that the relationship is is the foundation of it is hasn't changed and that is a broker is in the business of representing their client and their clients interest and helping them to select advising them and helping them to select the right coverages, the right insurers, and put together the right program. They intermediate that. And our relationship is brokerage is an ambivalent relationship. You work in partnership together, and you also work for each of your respective interests.

Thank you for your answers. Yeah, I got it. Thank you.

Our next question will come from Mike with Credit Suisse. Please go ahead.

Hey, good morning. First question, Evan, when you were talking about the competitive environment in your prepared remarks, I think you used the term reset of risk appetite on the part of some competitors. Do you feel that that reset is causing maybe pricing to move well in excess of loss trend and low interest rate pressures in certain lines? I guess what I'm trying to get at is that I think we all know that there's a number of competitors kind of resetting, and that gives us confidence and new confidence that the rate environment is moving in the right direction. I guess a lot of investors ask us whether, you know, Chubb's margins can maybe eventually benefit more so.

Yeah, you know, look, I can only speak about what I know, not what I don't know. There are lines of business, there are numerous lines of business where rate is exceeding loss cost trend. And that is it's healing margins, and therefore it is naturally ameliorating and benefiting margins. And then there are other lines. And some of that, it's actually improving the underwriting margin. And in some areas, it needs to go further because it's still not adequate to earn a positive underwriting margin. So it's all over the lot. As Chubb's margin goes, I'm not going to prognosticate about the future. The trends as we see them are positive, they're good, and all things being equal, it benefits margin. However, I can't speak to the future loss cost environment and future trends that way. So that's why I never predict the future when it comes to that. We're in the risk business.

Okay, I thought that's helpful. And lastly, kind of as a follow-up to one of the previous questions, Evan, you said that, broadly speaking, asset values are inflated, and I think you alluded to also the M&A environment, but you can correct me if I'm wrong. So does that imply that there's maybe less M&A opportunities today than I guess, well, there hasn't been much M&A for you guys in recent years. And maybe Phil can also remind us of the drag excess capital's having on your ROE. Thanks.

Yeah. In the environment, sure, you haven't, you've seen us quiet. And you observe the prices for assets yourselves. I assume you come to the same conclusion I do.

Phil, on ROE, it's in the range of 0.7 to 1%. Thanks.

You're welcome.

Our next question will come from Yaron Kinnar with Goldman Sachs. Please go ahead.

Good morning, everybody. Evan, this is probably just me not in full capacity after a busy night, so I apologize in advance. But there is something I don't quite understand. I'm sorry?

Did you drink too much?

I drank a lot of insurance P&L, yeah.

That's intoxicating, isn't it? Yes.

So, you know, overall loss trend remains stable at 4.5%, which incorporates lines that are deteriorating, others that are benign. But if it remains stable, why are we seeing Chubb and peers increasingly vocalizing concerns over loss trend deterioration? And why are rates as a whole firming?

The loss environment in those troubled lines, you do see trends. And you do see it showing up in overall loss picks that you've seen loss ratios in casualty rising. And I'm using casualty broadly. I'm using the term to include professional lines and general casualty. taking out workers' comp. You know, it varies by line, but you've been hearing about it and seeing it in commercial auto. You've been hearing about it and you've seen it in D&O and medical malpractice and excess liability. And so that has focus and attention from, you know, underwriters see it and the investing community sees it. So there's dialogue about that. And I do think that it is the loss cost environment there has not been benign. I've been talking about it for a while. Our own loss picks in those areas have been increasing. It does have an impact on our overall loss ratios because it gets blended in there. You know, you need to You need to be aware of it and focus on it. And it is a trend right now. It has been and is. Am I making sense to you?

Yeah, yeah. And so what it means, though, that even if the long-term loss trend remains stable, there is a certain reset of a base given the recent experience?

No, not a reset of a base. But remember, we're talking loss ratios. And that's calendar year. That can include prior period reserves. That includes current accident year. So naturally, you've seen very strong rate and with more benign loss years. releasing reserves into earnings when I take prior period. And you know, as you get to more recent years, rates have been going down, loss cost trends have been rising, and you've seen underneath the surface of these loss cost trends, some of these ones that I just talked about and have been talking about that are that are more troubling, and they show up. And then in the current, that all then rolls forward to the current accident year loss specs, where you raise your expectancy today, and as it has trended from the recent and past years.

Okay.

And then my follow-up question is... Am I being clear for you?

I think so. I may follow up offline, but I think I got the general gist. And then my second question is just around, you had mentioned the three buckets, attritional loss, three layers, access enlarged to mega. Can you offer maybe a broad distribution of premiums for a job by those buckets?

No. No.

Okay. Thank you.

You're welcome.

I don't have those in my head. We'll go next to Michael Phillips with Morgan Stanley. Please go ahead, sir.

Thank you. Good morning. I guess I appreciate, Evan, your comments on not wanting to kind of go and predict the future. I guess I would ask then on your North America commercial that we had 90 bps of deterioration in the core. How much – and you call out the commercial property – I mean, can you say how much that 90 bps would have been without that commercial property losses?

Well, we said that I'm a little lost. The 90 bps is in the combined ratio. That's correct. The loss ratio in North America commercial was two points. We told you one point was year-to-date property where loss is outside the loss pick, and we said the other one point, was casualty-related, long tail lines, which is casualty broadly, and that was in line with our loss picks all year, no change. That's just rate and trend.

Okay. All right. Thank you. Phil gave you that. Yep. No, perfect. Thanks. And then I guess on On those three buckets again that was just asked, do you have any concerns on what you see in that second layer kind of filtering back down into the first layer that you talked about, the first bucket?

No, we're not seeing it that way. And, you know, think about it a little bit. The average loss always increases by a normal trend factor in the primary layer. Frequency has been pretty steady. It's always jittery a little bit, but steady. And the severity has risen at a kind of a normal loss cost trend. But what it does is when attachment points, and that's what I was trying to say, in excess, don't change over years and years and years, then more losses bleed into that layer. Do you get it? And that's separate from the larger one-offs, excess losses that I talked about. I broke bucket two down into two pieces for you. And so to answer your question, no, I don't see that. It actually works the opposite. Thank you, Evan.

You're welcome.

We'll go next to Ryan Tunis with Autonomous Research. Go ahead, sir.

Hey, Grace. Good morning. Evan, I wanted to go back to your comment in your prepared remarks where you said that conditions are sustainable. I was just a little bit confused on what in particular is sustainable. Is it the price and the loss trend environment? I guess maybe a little more specificity on that, please.

Yeah, Buddy, you're overthinking it. I was talking about the underwriting and pricing environment only.

Got it. So broadly speaking. I guess my follow-up-

We see in the areas that this is impacting, we see it continuing.

Understood. And then I guess my follow-up is keeping it on this discussion about, you know, it sounds like, and I might be wrong on this, but it sounds like there might be a difference between the conversation about lost trend and the conversation about lost picks. Is it, you know, like, for instance, Phil mentioned that, sorry, Evan.

Go ahead.

So Phil's comment that because of casualty lines in North America, the accident-year loss ratio deteriorated a point. Yeah, it's similar to previous quarters, but in previous quarters you seemingly didn't have quite as much rate. So is it such that there's an uncertain enough loss environment that you're observing a certain level of trend, but maybe you're saying we should, out of abundance of conservatism, just continue to set loss picks a little bit higher, and that's why That's perhaps staying at a point. Or is it more simple than that? And I just have that wrong.

It's more simple than that. I'm trying to understand how you're thinking about it. But remember, the loss ratio is based on earned rate, not written rate. And it's earned rate over loss. The loss pick you had, earned rate. Again, you trend losses forward. We have an overall loss trend factor of four and a half. We had an earned rate of whatever it was in those long tail areas. That went into us imagining a loss pick for the year in those casualty areas of X. And that has remained steady. We have not changed the loss ratios we have selected in any of our casualty areas.

So there's more that we would expect that point of deterioration to moderate.

Then the earned premium grows. Then you look at the loss costs. trend for each line and you decide it does it remain the same or does it go up or go down got it um i'll leave it there thanks simon okay best i can give you ryan that's why i'm not prognosticating future i go back to that But I'll, you know, based on what I see right now, I got a four and a half loss cost trend, and I've got, you know, and that is a blend of all lines of business, and we've got rate that exceeds loss cost trend in North America. Hello?

Next, Brian Mayer with us. Yes.

Yeah, thanks. I'm just curious. I'm just curious. Are you getting tightening terms and conditions enough to maybe ameliorate some of this lost cost trend here going forward, or should we not think about it that way?

Are we getting changes in terms and conditions?

Yeah, tightening enough that maybe you can get some of the social inflation.

You know, in some, and I don't want to overstate it, so I don't, you know, you can't bake it in in the overall. But we are getting more changes in deductibles. We're getting changes in sublimits. We're getting changes in attachment points in casualty excess. And those things are all part and are ameliorating, and we put values on those.

And that's not in your – when you give us your price increases, that's not included in that, is it?

In some lines, it is. Because where we can actually measure it, it is an exposure adjustment, and then we take rate against exposure, and we – We determine, well, we can determine mathematically. That allows us, that is the same thing as rate. So we do, we consider it.

Great. And then my follow-up question, I'm just curious. PG&E, I know it's been talked about a little bit. There's nice subrogation that should be coming through there. What are your kind of thoughts on that subrogation? When could you potentially?

You know, I'm not going to speculate on that. But we don't see any material or substantial future subrogation opportunity for Chubb from PG&E.

Got you. Thank you.

You're welcome.

Our next question will come from Ryan Tunis, Economist Research.

I actually didn't have another one, but I guess I'll ask on agriculture. I think I asked last quarter on this as well. I don't think anyone got to it, but I guess there was a little bit of a higher loss pick there. I guess first of all, what does that incorporate? How much development could we potentially expect on that in the fourth quarter? And what are you still thinking a good combined ratio to use for that business is when we look out to 2020? Or just, I guess, a normalized annual combined ratio for the overall crop segment?

I'll just take that last part. We've run in the high 80s to 90 historically, and we don't see a change to that. And by the way, look at the last number of years. We had excellent results. the last few years in that business. It has a natural volatility. It's crops. It has both an attritional and a cat-like nature to it. And, you know, this year we're going to have less than average year for that business. And let me turn it over to John Lupica for a minute to give you a little more color on that.

Yeah, thanks, Evan and Ryan. We certainly adjusted the. The unit numbers in the quarter based on what we know today. And we we still have to capture all the yields from the field. Before we can really put a final number. The nice part about the year is prices are pretty much at base price as we finish out the October harvest price schedule. So do the delay in planting the harvest period has been pushed out five to six will obviously have a better sense of the year. And as Evan noted, if we don't see any change off our expectations, we certainly expect it to be in that low 90s low 90s area.

low 90s combined for the fourth quarter would be about where we would imagine if nothing changes from what we know now. But, God, there's a lot of unknowns out there. We have no idea right now about yields. We just don't know.

Perfect. And I guess I want to ask one more. Workers' comp, Evan, obviously been under some rate pressure. I mean, how are you seeing absolute levels of profitability there? There are fewer opportunities today than there were at one point. I mean, what's the outlook right now in workers' comp?

The growth area at this time. It has... It has lost cost trends have been quite benign. And the industry has responded with a lot of competition and lowering of prices. Some of it rational, some of it just beginning to overshoot that mark. you know, the benign loss-cost environment, it's questionable whether that will remain. And so we have been, as rates have been coming down, we have been exerting more discipline in that area. It has not been a growth area for us. And I'm speaking primary risk transfer business. In our risk management business, that's a whole different book, and that's where the You know, it's a large account where it's self-insured or self-funded on some basis. And we provide all kinds of services and we provide excess coverage. And there, you know, that's an area that we're quite active. And, you know, probably the largest writer of that in the United States. And we have a lot of knowledge and capability and You know, and that's where the client has skin in the game.

It makes sense. Thanks. You're welcome.

Next, we'll go to J. Gil with Barclays. Please go ahead.

Good morning. I know it's early days with regard to other catastrophe, lost potential in 4Q, but any initial perspective on Typhoon Hajibis and the California wildfires and And looking at that relative to what was a pretty heavy catastrophe loss a year ago in the fourth quarter, around eight points of catastrophe losses on the combined ratio, how should we think about that?

Well, you should think that this is October, so we're one-third through the movie. And I can't tell you how the movie ends. I didn't see it before. So, you know, I don't know. We're in the risk business. And part of being in the risk business, we take catastrophe exposure. And so I don't wring my hands about having catastrophe losses. I'm just concerned, did we measure the exposure correctly? And did we charge a proper price for taking the risk? Other than that, I'm going to have that volatility. So I'm not wringing my hands. On the Japan typhoon, so far from everything we know, it is not a significant event for Chubb. On the California wildfires, they're ongoing right now. The only thing we know is the tick fire is the one that's out. And on that one, we didn't have any losses. And on the other two, I don't know. It's just very early days, and I'd rather not predict. And I don't know what the outcomes will be. At this moment, our losses are very minor.

Right. Understood. And then on a separate issue, I just want to follow up on the North America commercial. The gross written premium in the third quarter was up 10% year over year. Was there anything, any one-timers in there that would have influenced that, or was that Was that kind of a true perspective on the growth rate that you're now seeing in that business, improving market conditions?

We didn't have anything mega in the quarter, but we write large account there. And so we won a number of new large accounts, and that's what just gets baked into that. but nothing in particular that stands out to us.

So a strong acceleration in the core business production.

It was a strong growth quarter. We won a number of new large accounts in the quarter. But remember, it's lumpy business, so I can't tell you, you know, the next quarter is going to be the same. It bounces around a bit. But it was very good. That's great, thank you. We liked everything we saw about how the market behaved and moved towards us in terms of rate and terms.

Excellent, thank you.

Our next question will come from David Momaden with Evercore ISI. Please go ahead.

Hi, good morning. Just had a question and appreciate the color on the three buckets. Just wanted to get a little bit more detail on when you really saw or have seen an acceleration in the loss trends in the last two buckets, and specifically if you've seen any increase over the last couple quarters that you'd note.

Nothing over the last couple of quarters that we'd note. I've been talking about this. If you go back into shareholder letters and into quarterly – Commentaries, we've been talking about this for two years.

Got it, so no meaningful acceleration beyond what you've been mentioning. Okay, that's helpful. And then just on the PPD in North America commercial, The Child's Victim Act obviously went into effect this quarter. Just wondering any early indications you got on your exposure there and if that was an element that led to the lower year-over-year PPD.

No. Zero, number one. Number two, I think you're referring to New York. California went into effect. I believe the governor signed it last week. And there are a number of other states that are in the middle of passing reviver statutes now. I have no way at this point of estimating the exposure and ultimate loss to Chubb in that. You're at the very beginning. It's way too early.

Okay, great. Thank you.

You're welcome.

And ladies and gentlemen, at this time, our final question from Meyer Shields with KBW. Please go ahead.

Great. Thanks very much.

Evan, I was wondering if there's any way of quantifying broadly how much of the current insurance market... Oh, Meyer, we haven't added it up that way or thought about it that way. And when you say the market... You know, that's asking – you know, I can't – I cannot tell you the adequacy of the ocean overall. So, no.

Okay. Fair enough. The second question, given – I don't know whether it's external weather issues or the underlying climatological changes. Is there any way of assessing what loss trend is for North America property lines?

There's no way for you to assess that, but we can assess that.

Can you tell us what you've come up with?

And it'll vary. Meyer, I'm not disclosing it, but it'll vary. We're not going into sublines, but it'll vary. You know, we have a number of property portfolios. We have first dollar property that is admitted risk. We have first dollar property that is E&S, and they behave differently. We have excess property. and we have other coverages that go along with that, and then we have large account property, and it all behaves a little bit differently.

Okay. Thank you very much.

You're welcome.

And this does conclude today's question and answer session. I'd like to turn the call back over to today's presenters for any additional or closing remarks.

Thank you all for your time and attention this morning. We look forward to speaking with you again next quarter. Thank you and have a good day.

And this does conclude today's call. Thank you for your participation. You may now disconnect.