Chubb Limited

and welcome to the CHUBB Limited Third Quarter 2020 Earnings Conference Call. Today's conference is being recorded. We will conduct a question and answer session after the prepared remarks, and if you would like to ask a question, please press star 1. For opening remarks and introductions, I would like to turn the call over to Karen Beyer, Senior Vice President, Investor Relations. Please go ahead.

Thank you, and welcome to our September 30, 2020 Third Quarter Earnings Conference Call. Our report today will contain forward-looking statements, including statements relating to the company performance, pricing and business mix, and economic 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 I'd like to introduce our speakers. First, we have Evan Greenberg, Chairman and Chief Executive Officer, followed by Phil Bancroft, our Chief Financial Officer. Then we'll take your questions. Also with us today to assist with your questions are several members of our management team. And now it's my pleasure to turn the call over to Evan.

Good morning. The quarter was marked by continued insurance market hardening, an economy struggling to reopen globally, and a very active period for catastrophes, with current industry estimates ranging between 35 and 40 billion in insured natural and man-made cats globally. As an industry leader, we, of course, have our share of exposure and losses. We published a PMC combined ratio of 95 percent, which was impacted by 925 million of net cat losses, a good performance all considered supported by both significant underlying underwriting margin improvement and very strong commercial PNC revenue growth globally as we capitalize on favorable underwriting conditions. To begin, in terms of CATS, we tracked over 40 separate events globally in the quarter, a very high frequency. For the North Atlantic hurricane season, we're now into the Greek alphabet. Aside from hurricanes, we had the derecho in the Midwest, the wildfires along the West Coast, and a number of international weather events. The increasing trend of both frequency and severity of events from a variety of natural perils, wind, flood, and fire-related, informs our views of current and future expected cat loss levels, as well as our view of required rate to ensure the exposure in both commercial and consumer property-related lines. Where we can get paid adequately for the volatility and uncertainty, we will maintain and even grow our exposures. Where we cannot, we shrink. And in either case, shape our portfolio according to our risk appetite. California wildfire is a good example of both shrinking and shaping the portfolio. We shrunk our overall insured home count 16% over the past few years and improved the shape of the portfolio by reducing the home count 21% in fire-exposed areas. Overall, for CatRisk, there is more to come as we continue to improve the tools we use, both science and technology, to better assess the risk and concentration of exposure in the areas of flood, wildfire, and wind. Our global PNC, which excludes agriculture, ex-cat current accident year combined ratio was 85%, an improvement of 3.3 points over prior year, with underwriting income up 36% in constant dollars as a result of both margin improvement and earned premium growth of 10% in commercial lines. Over two points of the margin improvement were loss ratio related, and the balance was expense ratio related. Of the loss ratio component, about a point was margin improvement because earned rate exceeded loss cost trend. The balance was a modest recognition of the favorable impact from the health related shutdown and economic conditions principally a reduction in loss frequency in u.s and latin american automobile lines of the 1.2 points expense ratio improvement the acquisition related portion is due to mix of business i.e less consumer more commercial and of the operating portion one half is efficiency related and the balance is due to current operating conditions. As for crop insurance, much has been written about the impact of the derecho on crops. Despite the derecho, from all we can see, we are on track for an average crop insurance year. Finally, given the relatively improved visibility and stability in both the risk and business environment as compared to the first three quarters of the year, And given our very strong capital position, we are lifting the moratorium on our share repurchase activities. Phil will have more to say about investment income, book value, tax, and prior period development. Turning to growth and the rate environment, PNC premium revenue in the quarter grew about 6.5% globally in constant dollars, made up of 10.8% growth in commercial PNC, and 3.3% decline in consumer lines, which included negative growth in global A&H and international personal lines, and positive growth in North America personal lines. In the quarter, we continued to experience a strong and continuously improving commercial P&C pricing environment, particularly in North America, the UK, the continent of Europe, and certain locations in Asia Pacific. and it continues to spread further. In North America, commercial P&C net premiums grew over 11%, which is very strong, and by the way, includes a reduction in growth of five points due to reduced exposures from the decline in economic activity, including employment. New business was up 15%, and renewal retention remains strong at 93.6% on a premium basis. In our North America major accounts and specialty business, net premiums written grew over 12%, while our middle market and small commercial business grew about 5.5%. In our international general insurance operations, commercial PNC net premiums grew 13% in the quarter in constant dollars. Our international retail commercial grew 11%, and our London wholesale business grew nearly 22%. New business was up over 6.5% overall internationally. Retail commercial PNC growth by region with net premiums written up 26% in continental Europe, 11.5% in Asia Pacific, and about 9% in UK and Ireland. Globally, in those markets where we grew, we continued to achieve improved rate to exposure across our commercial portfolios. And I'll return to that. Overall rates increased in North America commercial P&C by over 15%. In major accounts, risk management casualty rates were up 6.5%. General casualty was up 31%. Property rates were up 22%. And financial lines rates were up 23%. In our ENS wholesale business, property rates were up 21%. Casualty was up almost 32, and financial lines up about 25.5. And in our middle market U.S. business, rates for property were up 16. Casualty rates were up over 11, excluding comp, which was down 1.2. And financial lines rates were up over 17%. And in international general insurance operations, rates were up 15% in international retail, and 32 in London wholesale. Consumer lines growth globally in the quarter remains heavily impacted by the pandemic's effects on consumer-related activities. In our international personal lines business, which is predominantly auto, home, and cell phone, premiums shrank 1.7%, while our global A&H premiums, that's U.S. and international together, were down about 12.5%. We expect both to return to growth sometime during 21. Our North America personal lines business grew about 3% as we continue to experience flight to safety and quality in our high net worth segment. New business in that line was up over 11%, and retention remained very strong at 95%. Our global re-business grew premiums 27% in constant dollar, The underwriting environment is improving in reinsurance, and global REI has become more of a growth area. Lastly, our Asia-focused international life business had a decent quarter, with net premiums written up about 9.5% in constant dollars. In sum, we are in a hard market or firming market for commercial PNC. Depending on where you are in the world or cohort of business, and it is spreading. Where we are growing, we are achieving rates that exceed loss cost, and therefore we are achieving margin improvement. More lines of business on a policy year basis are coming closer to achieving combined ratio levels that will produce adequate risk-adjusted returns. However, in most areas, rates need to continue moving higher. I believe they will, based on everything we see. given the risk environment, interest rate levels, and for how long business was inadequately priced by many companies. The current market is a reasonable response, and the trend, in my judgment, is enduring. John Keogh, John Lupica, and Juan Luis Ortega can provide further color on the quarter, including current market conditions and pricing trends. Closing, our company is in excellent shape. We have the people, the capabilities, the culture, and the command and control structure to execute and continue capitalizing on this improved underwriting environment. Our fundamentals and balance sheet are strong, and we know our minds. Again, where we can get paid adequately to assume the risk and volatility, we're leaning into it and growing exposure and rates. As we look forward, we expect to grow our EPS through both revenue growth and improved margins. With that, I'll turn the call over to Phil, and then we'll come back and we'll take your questions. Thank you, Evan. Our financial position remains exceptionally strong. Total capital grew to $73 billion, and our AA-rated portfolio of cash and invested assets grew over $5 billion this quarter to $118 billion. Our strong underwriting results and investment performance produced a $3.5 billion of positive cash flow in the quarter. Among the capital-related actions, we returned $353 million to shareholders in dividends, and in September, we issued $1 billion of 10-year debt and an interest rate of 1.38%. The proceeds will be used to pre-fund $1 billion of debt due in November 22 with an interest rate of 2.78%. Adjusted net investment income from the quarter of $900 million pre-tax was higher than our estimated range and benefited from increased corporate bond call activities. In addition, there was a $32 million of investment income previously included in other income from our private equity partnership funds where we owned greater than 3%, that we are now classifying as adjusted net investment income. We believe reclassifying this income as investment income is more appropriate. We adjusted the prior period results to align with this new presentation in the financial supplement. While there are a number of factors that impact the variability in investment income, we now expect our quarterly run rate to be in the range of $890 to $900 million. This considers the reclassification of private equity income described above. In light of the reclassification, we now estimate other income and expense to range between zero and a $5 million expense going forward. we continue to record the change in the fair value mark on our private equity funds outside of core operating income as realized gains and losses instead of as investment income, as other companies do. In this quarter, the mark-to-market gain related to private equities was $428 million after tax. Book intangible book value per share were up 3% and 4.7% respectively in the quarter, favorably impacted by net realized and unrealized gains of $1.1 billion after tax, principally in our fixed income investment portfolio for lower interest rates, and mark-to-market gains on private equities. At September 30th, our investment portfolio was in a net unrealized gain position of $4 billion after tax. Our net catastrophe losses for the quarter were $925 million pre-tax or $797 million after tax, primarily attributable to severe weather-related events globally and wildfires. There were no changes to the previously reported aggregate COVID-19 loss estimate from June 30th. Additional information on catastrophe losses is detailed in our financial supplement. Our net loss reserves increased $1.5 billion in constant dollars in the quarter, and our paid to incurred ratio was 73%. We had favorable prior period development in the quarter of $146 million pre-tax or $126 million after-tax. This included 35 million pre-tax adverse development related to legacy environmental exposures. The remaining favorable development of 181 million comprises 312 million of favorable development from long-tail lines, principally from accident years 2016 and prior, and adverse development of 131 million in short-tail lines. Our core operating effective tax rate for the quarter was 16%. We continue to expect our annual core operating tax rate to be in the range of 15% to 17%. I'll turn the call back to Karen.

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

And again, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Again, that is star 1 to ask a question. And our first question will come from Mike Zaremski with Credit Suisse. Please go ahead.

Hey, good morning. Thanks. I guess first question, if we can kind of talk about M&A appetite and your willingness to entertain additional kind of transformational M&A. I think one of your peers earlier this week kind of talked about looking to break up the company. Do you have any view of whether you think there's kind of properties out there that could become available that you'd consider engaging in M&A with?

Well, very short answer. It'll be real quick. I'm not commenting on M&A and Chubb's appetite and whether we're entertaining this or that. Just stay tuned.

Okay. Okay. Moving on to, I guess, the environment. I guess one of the main questions i get asked is is whether we feel you know code that is the charges are more in the rear view mirror um or is there a chance that um companies kind of have to change their loss picks um currently up. Clearly, COVID demonstrated great results this quarter. There's a lot of improvement in the margin. Some of it due to a benefit from COVID, most likely due to less change frequency. But I guess the question is, if the pandemic drags on through next year, is that something that could cause CHOD to change its COVID loss picks? Just trying to think about how sturdy the charge you took last quarter is and how to think about it potentially changing. Thanks.

We took no adjustment to our COVID charge. We see our reserve as adequate. There's nothing that shows us any reason to be imagining any charge. Thank you very much for your questions.

And our next question will come from Greg Peters with Raymond James. Please go ahead.

Good morning. Thanks for all the information in the call on pricing. If I step back, Evan, in your second quarter conference call, when asked about market conditions, you opined that perhaps over 50 percent of your business was in a hard market sort of environment. Would you characterize the change from the second to third quarter as being more of your business being in hard market, or is it the same lines, just continuing to experience these conditions?

No, you know, Greg, I haven't calculated it precisely, but it has spread to more lines of business and more cohorts of risk. And when I think of cohorts... And that's why I use that term. It's line. It's customer cohorts within lines. So if you think of large account versus upper middle market versus middle versus small. And then I do it by territory. And I think about it across geography. And when I look at it that way, it continues to spread. It's more in the middle market than it was. It's in more geographies. It's in more large account business in more geographies. And it's spreading to more lines of business. And within lines of business, it's been accelerating.

Got it. Thanks for that answer. My follow-up would be just in your prepared comments you talked about, the expense ratio. And I think for one portion, you identified that half was efficiency gains and half was operating conditions. I guess, you know, considering the effect of COVID and the economic slowdown on things like T&E, etc., As we look forward and let's move past this year, we think about next year and the following years, how much of the expense improvements do you think that you've realized are structural and will be with the company going forward and how much are transitory or sort of one-time in nature?

Greg, I gave you such transparency by breaking down, as I did for you, the commentary it was a gift and I gave you a sense of what you know at least I can see right now or current condition related versus what is structural related and from there I don't have a crystal ball to go forward but I gave you a So the half is run rate related and the rest that has to do with the environment. Well, I can't tell you precisely, you know, when does travel open up? When does businesses open up? When are you back at not just traveling but meetings and and other activities that have to do with people-to-people contact and all the rest of that. I can't tell you that.

Got it. All right. Thanks, Evan. You got it.

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

Good morning, Elise.

Thank you. Good morning, Evan. My first question, you know, I appreciate all the comments on price increases used Very helpful. You pointed to North America rates up over 15% in this quarter. If I also go to some of your other comments, you pointed to rate exceeding trend on an earned basis by about one point, but that's on your overall book. As we think about earning in that 15% of rate within North America commercial, can you just give us a sense of how that reading could translate into margin improvement over the next year? Maybe you don't want to get into specific numbers, but just as we can think about the trajectory within North America commercial, given that you're getting such great rate within that book of business.

Yeah, you know, Look, Elise, it's going to earn its way in, and it will continue to have an ameliorating and positive impact on margin. That is what I'm telling you. And I see margin improvement in loss ratio, all things being equal. And I gave you a sense on expense ratio. um beyond that i'm not going to get to point estimates and i'm not gonna i'm not going to as you know i don't we don't give forward guidance so i i actually creeped right to the line to give you a better sense than i have of that number the 15 breaks down by line of business and and you know some lines um require more rate than other lines do And it depends on loss trend. It depends on where you're starting from. And I gave you a sense as well that on a policy year basis, it's not a matter of making underwriting profit. That's my minimum red line in a soft market. In a harder market, and what we strive for over any cycle, is to earn a proper risk-adjusted rate of return, which means a combined ratio that will generate just that. And we consider all the factors, trend and loss ratio, etc. And we're coming closer in different lines of business to pricing levels that will achieve that. It's not there yet. And we will continue to, I imagine, and I see that we'll, and I'm confident in it, that we'll continue to publish improved margins as we go forward. And, you know, all things being equal, because I can't predict volatility in the risk environment, cats, et cetera. So I hope that helps you.

Yes, that's helpful, Evan. My second question is, You know, you've been pretty bullish on the market, I would say, over the past few quarters. I recognize every hardening market is different. But if you think about these rates, right, 15% in North America commercial, strong rates on commercial internationally as well. Does this market... you know, feel like we're in the strongest market as compared to, like, the early, like, 2000s? And obviously there's differences with interest rates, et cetera, but do you feel like today we're getting the best rate and have the best forward momentum as, you know, with the closest being 2000 as compared to today?

I don't see it as like the early 2000s. I don't see it that way in terms of rate. And, you know, look, Elise, look at the lost cost environment. We just look at the cat environment. You got to be able to pay for cat and modeled and non-modeled. And in short tail lines, you know, the industry is chasing a risk environment in that area. You look at casualty when you look through COVID plus and minus and You know, I can expand on that comment of COVID plus and minus later. But when you look through, you have a lost cost environment that is not benign. And, you know, you have an industry that, in my judgment, fell behind on pricing, quite a bit behind. And the momentum is very good, but it's got a ways to go. And then, you know, there are some areas, look at the size of workers' comp in the market. And workers' comp rates have continued to go down. And, you know, we don't see that as a growth area to jump. You know, workers' comp continues to go down. And, you know, I wonder if the industry won't overshoot the mark in that area. You know, right now you have, you know, we can come back to it. It's one of the areas that may have some frequency benefit from COVID, et cetera. But that ultimately becomes a head fake. and then you play catch-up. So, you know, mixed bag that way. I don't see it as the early 2000s, but I see it as a very healthy trend, and we are in a hard market, and it needs to sustain itself.

Thanks, Bevan. I appreciate all the callers.

And our next question will come from Michael Phillips with Morgan Stanley. Please go ahead.

Thank you. Good morning. Evan, more on the environment, I guess, kind of drilling down into, you know, you've talked about areas where you see growth opportunities and you're going after those pretty aggressively because the rate is good.

Can you talk about, would you want to talk about areas, specific areas and maybe lines or whatever the way you want to talk about it, where you'd shy away from? No, I'm not going to, um, I'm not – that's proprietary. That I'm not going to get into. And I don't think that benefits an investing thesis. So I'm sorry, Mike. I'm not going there.

Okay. No, thanks. And then I guess you've talked about it in the past.

I'm not going to help others to benefit from Chubb's knowledge. Fair enough. Thanks. You've talked about this in the past, maybe an updated view on Overseas Gen. Mike, I lost you. You just said Overseas Gen and then cut out on me. That's right. Is this better, Evan? Keep going. I'll tell you if it's better.

Okay. No, thanks. Update on Latin American Overseas Gen on INGO for lack of a better term to say.

Did you say Latin America? I did, sir, yes. And you wanted an update on Latin America? I did. Okay. You know, Latin America is only three months since I think I gave you the last update on it, and not much has changed. Latin America is the one region that I think is going to suffer the most and will continue to suffer When you add the combination of economic conditions there, political and government-related policies and leadership, the general infrastructure and the management of healthcare and the capabilities of government healthcare and the security situation in numerous countries in Latin America. You know, it all mixes to where you can't be overly optimistic. It's not a region where I'm expecting to see growth. We have negative growth right now, and I expect that that will turn around because we have a large consumer lines business, and that is beginning to stabilize and quarter on quarter is starting to look a little better. And we'll then get to, you know, as the year we get into 2021, it'll stop being a drag and you'll have a year-on-year comparison and it'll improve. And some of the fundamentals in Latin America are stabilizing, but I don't see it arm arm as a real growth area and I'm at the same time I would say this we make money in Latin America and our combined ratios are healthy arm we have a good book a business we have a good position arm we've got a great team and I'm and I'm and you know we're positioned to take advantage we got a lot of opportunity and we're signing up a lot of new distribution, et cetera. And so, you know, over time and at some point, and that's why it's good to be a diversified global company as we are, at some point, you know, Latin America will contribute in a better way to the organization.

Okay, thank you. Thank you for that. Thanks.

You're welcome. You're welcome.

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

Good morning, David. Hey, good morning, Evan. Just hoping to get a bit more of your commentary just around loss cost trends. And you had kind of mentioned it in response to Elise's question. But just wondering any sort of update on what you're seeing in the third quarter as economic activity has picked up, courts have reopened, and how much conservatism you feel you're baking into your loss picks given the environment underneath some of the statements you made on the margin improvement.

Mm-hmm. You know, look, and... You know, I want to divide this. We use normalized trend to price, which is really data through the first quarter of 20. We look through COVID, both the pluses and minuses that in our judgment are temporarily distorting. And so we view COVID On one hand, it's a cat event, and it's a cat event that's producing some plus and minus. On the one hand, you have the COVID benefit from reduction in frequency, and that's showing up, and it shows up early. On the other hand, COVID losses are emerging. So far, from our global look at it, they're in the $30 billion range. And it's mostly short tail. And we stick to our view of the ultimate industry, COVID loss. Most companies, to me, appear to be recognizing COVID losses as they emerge. And they're going to emerge over the next few years. You haven't really seen the COVID casualty end of it. Or I should, maybe in your parlance, long tail. Does the benefit from frequency we're seeing right now ultimately offset the ultimate development on COVID? I doubt it, but I don't know. So as things stand, that means, again, we price looking through both the benefit of lower frequency. And we look through the COVID loss itself as we treat it as a cat. And we did our darndest to recognize it to ultimate. And there's nothing we see so far that changes our view of that at all. So that's fundamentally how we look at it. And in my judgment, that's how any good underwriter should be thinking about this. So then that says, you imagine that the world ultimately reverts to the normal trend lines we had been seeing in casualty, professional lines, property, et cetera, et cetera. And that's what we use to price. and to imagine the appropriate returns on the business. And maybe that gives you a better organized way of thinking about this.

No, that does. That's very helpful. I appreciate the color there, Evan. And so it sounds like there's really – There's nothing right now that would make you change your ultimate trend. So you feel comfortable that there may even be conservatism potentially baked in depending on how some of these short-term benefits come through.

Okay. Your first part I agree with. Your second part you have said twice to me. You know this. I'm a study in not answering that.

I thought I'd give it a shot, but I appreciate that. If I could just ask one.

It was a good shot.

Just one more. This is just a quick one. I know you've said in the past the E&S book is around 10% of the total company's premium base, but that was after a time where you cut that by roughly half over 10 years. Just from your prepared remarks, it sounds like we're in rate adequacy and more and more of those lines. My question is, you know, how big do you think ENS can become as a percentage of the entire company as we look forward over the next few years?

Well, first of all, ENS is growing. Rate adequacy, I return you to my comments about policy year. Be careful with the statements. Just because you're getting a lot of rate, you've got to know where the classes started from. You know, we shrunk – I'm going to give you an example. We shrunk primary casualty in the U.S. E&S just dramatically. That business, in my judgment, in the U.S., probably running 150. Anyway, so how much rate do you think that area needs to get to produce a reasonable – risk-adjusted, let alone umbrella or access. So, you know, what you need depends on where you're starting. And so imagine that. Now, you know, ENF is one of the growth engines right now for CHEP. Between Westchester, Bermuda, and London, exactly as I told you before, it's a growth engine. And how big can it become as a percentage of the company? Well, the rest of the company is not standing still, except temporarily the consumer lines business is, you know, going backwards a little bit. So I'd return you, I'd probably, which I'm not going to do, return you to that old joke about, you know, what will it be. It will grow as a percentage of the company. Thank you. Thank you.

And our next question will come from Brian Meredith with PBS. Please go ahead.

Yeah, thanks. I've got two ones for you, Evan. The first one, you mentioned you're lifting the moratorium on shared buyback, yet you still got, obviously, some pretty significant growth opportunities here, given that you're in this hard market and you're starting to see your growth accelerate here. How do you think about balancing the capital management with the growth here? Is it simply because you just stocked too cheap, you're like, it's a much better return to buy back stock today, rather than allocate it to some new business? How are you thinking about that? Oh, my God, no, Brian. You're way overthinking this. We have plenty of capital flexibility. There is not a prayer. I'm going to starve any business of growth because of capital. No, no. The businesses are left to grow as rapidly as underwriting conditions and our risk appetite warrant and our ability to get out of our own way and get after it allows. And so, no, and at the same time, I can guarantee you at this share price, I'm a buyer. Gotcha. Gotcha. So it was really the share price that prompted your decision. Let's just lift the moratorium here. No, it's not just the share price. That's actually my last consideration. That's my consideration in terms of do we buy or not buy once we've lifted a moratorium. The moratorium listing is based on simply good balance sheet and capital management and stewardship of the business. And that is based on our visibility and confidence in both understanding the environment we're in, the risk environment, the economic environment, etc., The stability of the organization versus that, as we see it, and our overall balance sheet position. And all of that says to us, okay, it's prudent to lift that moratorium. makes sense and then my second question evan you talked about some lines getting closer to kind of a acceptable rich adjusted return i'm just curious given the current interest rate environment and i know you've talked about roes and kind of where you would like them to get to you know what are you thinking pardon me we use the current interest rate environment gotcha what what do you think the appropriate kind of return on equity is right now for your business, right? And do you think given this firm market, hard market we're in, can you get there? Well, I'm certainly driving to get there. And this isn't calculus where you approach it and never reach it. You know, I expect to achieve it. And, you know, there's the most clear-eyed management position I can give you. And And I think that's in the industry's best interest to achieve stability in the face of a more hostile loss environment and the uncertainty in the environment. This industry needs to achieve the proper risk-adjusted return, and that varies by area of business and by company. But I'll tell you what, our objective of achieving in that 15% range has not changed. That's where I am. Great. Thank you. You got it.

And our next question will come from Ryan Tunis with Autonomous Research. Please go ahead.

Hey, thanks. Good morning. So, yeah, Overseas General, really good underwriting quarter. I guess what I'm trying to understand is, you know, how exposed is that to the dynamic between rate and loss trend? I think historically this has been more of a stable margin business. There's a lot of A&H, some personal lines.

So, yeah, I mean, to what extent do you think that segment should benefit in some of the same ways North America commercial is to pull margin improvement standpoint moving forward?

Well... You know, the market is not, the firming market is not about A&H, and it's not about personal lines. Those are very idiosyncratic, and they go to their own rhythm. Personal lines, in particular, are country by country, line by line. But the commercial lines business in international has many of the same trends that North America does, and it varies by country. I guarantee you in the short tail lines, you know, it's got the same trends and faces the same kinds of exposures that I'm sure you have noticed. By the way, just remember Australia wildfires, floods, wind, hailstorms. Just take them across the various geographies in international. And then in the long-tail areas, well, I'd refer you to professional lines and to different countries' casualty. Marine in certain markets, it has its own It has its own rhythm to it and patterns, but the themes are the same as North America. Very special. Gotcha.

And then, I guess just on the expense ratio, it always feels like in these hard markets, you know, if you guys are, but if a company is doing a 30% expense ratio and they kind of keep doing one, there's not usually a lot of operating leverage, if you will.

But we have seen their expense ratio improve over the past couple of quarters. And I'm wondering if, you know, is there a dynamic there of expense ratio improvement as well that's tied to

a combination of top-line growing at a more elevated pace that you think you can sustain.

I didn't get the last part of that question. I understood what you said, expense ratio, blah, blah, blah. Not blah, blah, blah, but I got expense ratio. I didn't get the punchline, Ryan. The punchline is, we usually think about these hard margins and loss ratio improvement stories, but we're seeing your expense ratio improve. We're not seeing your expenses grow at the level of your premiums. Is that the type of thing you think they can continue in this type of market?

Should we also be thinking that as you're getting the rate adequacy and as you're growing faster, we should also see some ongoing positive torque in terms of expense ratio improvement?

Well, I think I gave it to you already when I gave you the operating expense ratio and told you, how much was, you know, kind of COVID and health-related environmental, and excluding that about half the improvement in the OPEX was our own structural. And so that gives you a – I think that answers your question. But I don't give forward guidance. I'm sorry. On the other hand, what I also tried to give you, which, you know, I don't have a crystal ball on it, and that is in the acquisition ratio, we benefit from mix because of consumer lines coming down. And, you know, God bless. That's one that I hope turns itself around. And we have the pleasure of seeing our acquisition ratio to a degree go back up. because of the A&H business and some of the personal lines business, right? Yeah. And then one other thing I just – I know this was positive. I don't know how much you can help me with it. But it seems like a year ago we were – I'm a little worried about reserves, the seasoning, the vaccinate years, just across the industry. And your long-tail reserve releases of $312 million were higher than, I think, $280 million last year. um i think this is like 16 and prior before it was 15 and prior you know so it feels like the you know whatever information content we're getting this year on you know some of those greener older accident years has been positive is there a different you know you see a different dynamic as we get into kind of the 17 18 19 stuff where where we actually did start to see, you know, a little bit more of a pickup or, and I'm just trying to interpret the, cause that does seem like a high quality result.

I'm just trying to interpret, um, you know, what, what you're learning, not just about the recent COVID stuff, but also, you know, the, um, you know, in terms of the stuff that for a casualty standpoint, that, that, uh, yeah, that you wrote quite a long time ago.

Ryan, I know what you're, I know what you're saying. I know what you're asking me. You know, I've been saying for some time that the more recent accident years and casualty, when we look at trends and, you know, others have spoken about it, the so-called social inflation, which, you know, I think is too narrow a way of thinking of things. But in any event, you see a – you saw rates continue to go down. and then loss costs, particularly in the frequency, and to a degree dependent on the area's severity, the trends worsening. We saw it, we've been aware of it, and we have reserved and priced for it. I'm not sure the industry has reserved adequately for 17, 18, and 19, and we'll see over time But I think that's also part of the impetus that continues, you know, hard market resolve to recognize and get paid for the exposure. And for some, maybe to address polls they'll have in some of those more recent accident years. We'll see. Thank you.

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

Good morning. Thanks for taking my question.

My first question is around premiums. So I think premium growth this quarter actually came in stronger than the cautious tone that was set last quarter. It's not something like the tone has also changed and become a little more constructive here. What's changed, if I may ask?

What did you just say? I'm sorry. I'm not sure what you asked me. Okay. I think last quarter, the tone I heard about kind of second half of the year premium growth was cautious. And the results this quarter were actually quite strong on the premium growth side.

Sound simulator tone has also become more constructive going forward. So I'm just trying to understand what has changed from where you were seeing

the environment a quarter ago to where we are today. I see. You know, we don't exist in a vacuum. We live in a world right now. Look around you. By the way, are you talking to me from an office or your home?

I'm at home.

Okay. Okay. You're home because we're in a health crisis. And we got an economy with fits and starts. And we've got it globally. The visibility is not great. We have economic activity in terms of businesses. Are they opened or closed? We have a hard market and we have exposures. Are they reduced? Are they the same or they're increasing? Trying to guess. all of it in a general environment. I'm saying it to you this way first, because don't narrow your sight to simply the insurance market, or you miss the real picture that it's in context of a world that is unprecedented in our lifetimes. And so if I'm going to be responsible in any of my comments in that regard, of course I'm going to be reasonably sober in what I say. We're benefiting from all of the insurance market-related dynamics we've been talking about. And on the other hand, We have the vagaries of the world I just mentioned, and that's what you add together. And we're doing our best to drive through that. There will be some, you know, in our business, particularly by the nature of it, large account, middle market, small consumer, and the regions of the world we operate in, there will be some variability in growth rate quarter on quarter. you know, between the quarters. But overall, all things considered, I'm very confident in Chubb's ability to outperform.

Okay. And then my second question, probably a broader question still. So if I look at the PNC market, the tone from the supply side, including from Chubb, is that there's more need for rate momentum to continue with the low interest rate environment, with lost trend uncertainty.

Do you think that the demand side of the market can and will support this, considering that the underlying ratios are actually improving a bit, you're getting some favorable frequency, you're getting weight in excess of trend, COVID losses seem to be manageable to date, and part of your development doesn't seem to be a particular drag at this point?

You know, Yarn, first of all, I'm not sure in that comment you just listened to what I had to say. I'm sorry about what's the COVID benefit versus COVID losses and how to think about that. And what I was very clear about, so that's head fake, and you ought to go back and think about that with all due respect. But I think you see through that. And you look at the trends and you look what the industry requires to achieve a reasonable risk adjustment. And, you know, will clients decide that, well, the arbitrage, will large clients decide, well, the arbitrage I got from you because you were selling to me cheap. And I can't take advantage of that anymore, so I think I'll increase my retention to take more myself. Will that occur? Sure, it'll occur. And it always occurs. And it's natural. And it should happen. And that's not a problem to me. Is the industry overcharging and therefore there'll be a natural response against that? Absolutely not. And by the way, the last point that I think that I'm going to make to you that I think you left out when you talked about industry loss costs. You talked about loss ratio. Well, let's also talk about the reinsurance market. And the reinsurance market, I have some sense of their exposures. I have some sense of what they're running. And we have yet to see the real response from the reinsurance industry, which increases the cost to the insurance industry, which means that, you know, rates continue to move because costs go up. And, you know, Do I think for the industry this is great behavior? No. I hate the cycles this way. It's because the clients took advantage of very cheap pricing that kept going down year by year. The industry kept providing it to them. The brokers kept broking it. and no one came with clean hands in it. And it gets to a point then where pressure builds, and it goes the other way, and it does it in a way that I don't think is the most responsible way of doing this, but that's where we are. Thank you for the questions.

And that will conclude today's question and answer session. I would now like to turn the call back to Karen Beyer 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 great day.

And this concludes today's conference. Thank you for your participation