The Travelers Companies, Inc.

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 23rd 2020 at this time i would like to turn the conference over to miss abby goldstein Senior Vice President of Investor Relations, Ms.

Goldstein, please go ahead. Thank you. Good morning and welcome to Travelers' discussion of our second quarter 2020 results. We released our press release, financial statement, and webcast presentation earlier this morning. All of these materials can be found on our website at travelers.com under the Investors section. Speaking today will be Alan Schnitzer, Chairman and CEO of Dan Fry, Chief Financial Officer, and our three-segment presidents, Greg Teslowski of Business Insurance, Tom Kunkel of Bond and Specialty Insurance, and Michael Klein of Personal Insurance. They will discuss the financial results of our business and the current market environment. They will refer to the webcast presentation as they go through prepared remarks, and then we will take questions. Before I turn the call over to Alan, I'd like to draw your attention to the explanatory note included at the end of the webcast presentation. Our presentation today includes forward-looking statements. The company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are described under forward-looking statements in our earnings press release and in our most recent 10Q and 10K filed with the SEC. We do not undertake any obligation to update forward-looking statements. Also, in our remarks or responses to questions, we may mention some non-GAAP financial measures. Reconciliations are included in our recent earnings press release, financial supplement, and other materials available in the investor section on our website. And now I'd like to turn the call over to Alan Schnitzer.

Thank you, Abby. Good morning, everyone, and thank you for joining us today. As we shared in our pre-release last week and again this morning, we reported a small net loss for the quarter due to a high level of catastrophe losses and, as we expected, a loss in our non-fixed income investment portfolio. Dan will have more to say about both shortly. Our underlying underwriting income of $572 million pre-tax was up $254 million over the prior year quarter. benefiting from solid net earned premium and a 3.5 point improvement in the underlying combined ratio to a strong 91.4%. The pandemic and related economic conditions had only a modest net impact on our underwriting results. As I shared in my prepared remarks last quarter, there will be COVID-19 related loss activity, but there will be some offsetting decline in losses due to people across the country sheltering in place. For us in the quarter, $114 million of direct losses and $63 million of audit premium adjustments were about offset by initial estimates of favorable loss activity, most of which is in short tail lines. Given the continued uncertainty, we've taken a cautious approach to recognizing the net impact of COVID-19-related loss activities. Some industry observers have speculated about the aggregate level of insured and investment losses arising out of the pandemic. We don't doubt the losses will be significant, but they won't be borne evenly across insurers. Our manageable COVID-related insurance losses so far this year are a reflection of our disciplined approach to risk selection, as well as terms and conditions. And as we shared with you in some detail last quarter, we manage our investment portfolio with a similar regard to balancing risk and reward. Last quarter, I commented on the potential future impacts the pandemic might have on each of our key lines of business. I'll review that again with a quarter's worth of experience. In personal auto, we've seen a meaningful drop off in auto frequency, although that is moderating as economic activity picks up. At the same time, we've taken into consideration the potential for some offsetting impact in terms of auto severity due to factors such as collisions occurring at higher speeds and driver distraction. In workers' compensation, COVID-related claims mostly relate to healthcare workers and first responders, which do not represent a significant part of our book of business. Also, the frequency of those claims stabilize during the quarter, which might be attributed to an improved supply of PPE and the healthcare community having the benefit of more experience with managing COVID patients. More broadly beyond the healthcare sector, data from some of the state workers' comp systems suggest that the COVID-related claim rate is low relative to the infection rate. That's likely partly attributable to the fact that the population most seriously affected by COVID-19 skews older and is not in the workforce. Nonetheless, in developing our loss estimates, we've taken into consideration the potential for the delayed reporting of claims and additional claim activity associated with recent spikes in infection rates, as well as uncertainty related to the longer-term implications of the disease. As we anticipated, some states have effectively expanded the scope of workers' comp coverage by creating presumptions of compensability. In most cases, states have taken a thoughtful approach protecting workers appropriately, but not unreasonably burdening the workers' compensation system. Where states have acted to expand compensability, we've adjusted our loss estimates accordingly. In terms of non-COVID workers' comp losses, we've seen a lower volume of workers' comp claims as workers have stayed home. This will abate as people get back to the workplace. In addition to taking that into account, we have contemplated that severity could be adversely affected by injured workers delaying treatment due to the stay-at-home work environment. Having said all that, our experience is that there's a low level of workers' comp claim activity associated with economic recessions. During periods of elevated unemployment, workers tend to be more motivated to stay at their jobs, and the workforce tends to be more seasoned. In management liability, as we expected, we are seeing an elevated level of claim activity, typically associated with stock market volatility and workforce reductions. The underlying combined ratio this quarter in bond and specialty reflects that, as well as other loss activity, and we expect that the underlying combined ratio will continue to be elevated at this level or somewhat higher over the near term. This is not unlike the experience we had in the aftermath of the financial crisis a decade ago. Nonetheless, we expect the return from this segment will continue to be healthy. Turning to the surety business, we've been pleased to see that work is continuing on the vast majority of construction projects. However, the depth and duration of stress in the economy continues to be risk factors of the surety business. The line will also be impacted by other factors, such as the financial strength of the bonded firms. As I shared last quarter, our high-quality surety book was effectively stress tested in the 2008 financial crisis and performed well, and our underwriting approach has remained disciplined since that time. In that regard, So far, we haven't seen anything that has caused us to change our surety loss estimates. In terms of business interruption coverages under commercial property policies, there's a fair amount of litigation challenging coverage. As a reminder, our commercial property insurance policies that include business interruption, including as a result of civil authority, require losses to be caused by direct fiscal damage to property from a covered cause of loss. In addition, our standard policy forms specifically exclude loss or damage caused by or resulting from a virus. A few court decisions we've seen so far, one in New York and one in Michigan, have both upheld the physical damage requirement in the context of COVID-19. On the legislative front, efforts to retroactively expand coverage for business interruptions seem to be diminishing. Finally, With respect to liability coverages, as people shelter in place, we are seeing fewer commercial auto accidents and slip and fall type claims. Anecdotally, we are also seeing some movement by the plaintiff's bar to settle claims faster, but it's too soon to know how significant that benefit might be. We're also encouraged by states that have adopted COVID-related liability protections and similar efforts that are underway in other states and at the federal level. we shouldn't let frivolous lawsuits undermine the nation's recovery. Nonetheless, we expect the plant as far to continue to be active. Turning to the quarter on the top line, we're very pleased with our production results. Excluding the auto premium refunds we provided to our customers, net written premium grew by 2% as the impact of COVID-19 on insured exposures was more than offset by strong renewal rate change in all three segments. In business insurance, we achieved renewal rate change of 7.4%, the highest level since 2013 and close to the record level we achieved that year. Excluding workers' comp, renewal rate change was double digits. Importantly, retention levels remained strong. In bond and specialty insurance, net written premiums increased by 3% as our domestic management liability business achieved a record renewal rate change while maintaining strong retention. In personal insurance, excluding the other premium refunds, net written premiums increased by 6%, driven by strong retention and new business in both agency auto and agency homeowners. In our agency homeowners business, renewal premium change remains strong at 7.7%, and we hit a record for new business. Let me take a minute to comment on the commercial rate environment. Before the pandemic struck, there were a number of industry-wide factors putting upward pressure on prices, namely increased volatility of weather-related losses, interest rates at historical lows, and a growing recognition of higher loss trend in the liability lines. All of those conditions persist. And now, at another quarter with a very high level of weather-related losses, interest rates that are likely to be lower for longer And while it hasn't been a significant factor for us, a reinsurance market that has hardened. And on top of that, the pandemic and related economic fallout add a sense of incremental uncertainty, making this deal like one of those times not unlike in the wake of 9-11 and Hurricane Katrina when the market recalibrates risk. With that as the background, we'll continue to seek rate gains and manage other levers of profitability to improve the outlook for return. I'll close by saying that I couldn't be more grateful to my Travelers colleagues for their grit and commitment to taking care of our customers, our business partners, our communities, and each other. Also, the work they've done in recent years to advance our innovation agenda has equipped us with state-of-the-art digital tools and other capabilities that make all the difference in this environment. We were well prepared. And from here, we're well positioned. Free from financial and operational distractions, will continue uninterrupted, managing our business and investing for long-term success. In short, we're confident in our ability to continue to succeed through these uncertain times and to benefit from the strength of our franchise as the economy recovers. And with that, I'll turn the call over to Dan.