The Travelers Companies, Inc.

Good morning, ladies and gentlemen. Welcome to the third quarter results teleconference for travelers. We ask that you hold all questions until the completion of formal remarks, at which time you will be given instructions for the question and answer session. As a reminder, this conference is being recorded on October 20th, 2020. At this time, I would like to turn the conference over to Ms. Abby Goldstein, Senior Vice President of Investor Relations. Ms. Goldstein, you may begin.

Thank you. Good morning and welcome to Travelers' discussion of our third quarter 2020 results. We released our press release, financial supplement, and webcast presentation earlier this morning. All of these materials can be found on our website at travelers.com under the Investors section. Speaking today will be Alan Schnitzer, Chairman and CEO, Dan Fry, CFO, 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. We are very pleased to report third quarter core income of $798 million, or $3.12 per diluted share, and core return on equity of 13.5%. Our bottom line result this quarter reflects strong underlying underwriting income resulting from record net earned premium of $7.4 billion and an underlying combined ratio that improved 2.6 points to a strong 91.5%. We're pleased with the underwriting results in all three segments with improved underlying profitability in both business insurance and personal insurance. In business insurance, the underlying result improved due to margin expansion as earned rate exceeded loss trend. In personal insurance, the benefits from lower frequency in the auto business more than offset higher levels of non-catastrophe weather and wildfire losses. In bond and specialty insurance, the underlying combined ratio was elevated, consistent with the outlook we shared on the call last quarter. I'll note that the combined and underlying combined ratios were still under 90%, generating a solid return in a challenging environment. Profitability in all three segments continues to reflect the benefits of our strategic focus on productivity and efficiency, resulting in a sub-30% consolidated expense ratio. Core income for the quarter also included catastrophe losses of $397 million pre-tax, which were meaningfully above the 10-year average for the quarter. I want to acknowledge the devastation caused by recent catastrophes. We hope for a quick recovery for all those who have been impacted. I also want to express my gratitude to our dedicated claim team for taking care of our customers during these extraordinary times. Of the 100,000 or so claim notices we've received so far this year, arising out of a record number of PCS catastrophes in the U.S., our claims team has met our objective of closing more than 90% of the claims within 30 days. A quick resolution results in a better experience for our customers and a more efficient outcome for us. We also want to acknowledge the actions our underwriting and risk management teams have taken over recent years to manage our exposure to weather volatility. In addition to the property cap aggregate treaty, which has mitigated our losses, recent actions to improve the balance of risk to reward meaningfully reduced our exposure to wildfires. To illustrate the point, in the areas impacted by the five costliest California wildfires this season, our exposure is about a third lower than it was two years ago. Turning to our investment portfolio, this quarter we again benefited from our well-defined and consistent investment philosophy. With our high-quality investment portfolio generating net investment income, of $566 million after tax. Lastly, before I turn to the top line, I'll share that the uncertainty surrounding business interruption claims continues to resolve favorably and consistent with our expectations, so we remain confident on that front. In terms of the top line in production, we continue to generate strong results. Net written premiums in the quarter grew by 3%, driven by strong renewal rate change and retention in all three segments. In our commercial businesses, exposure change on renewed accounts was only modestly negative for both the quarter and year-to-date, compared to a much more significant reduction in economic activity. We believe that in addition to generating a better underwriting result, our high-quality portfolio of accounts is more resilient to economic hardships. In business insurance, we achieved record renewal rate change of 8.2%, four points higher than the prior year quarter, while retention remained strong. We achieved higher renewal rate change year over year and sequentially in each of our lines of business other than workers' compensation. In bond and specialty insurance, net written premiums increased by 4%, as renewal premium change in our domestic management liability business rose to 8.1%, including record renewal rate change, while retention remained at an historical high. In personal insurance, net written premiums increased by 8%, driven by strong retention in new business in both agency auto and agency homeowners. In our agency homeowners business, we achieved renewal premium change of 8.2%, its highest level since 2014. Across all of our businesses, we've made good progress achieving rate gains and managing other levers of profitability to improve the outlook for returns in those lines that need it, and we'll continue to execute to meet our return objectives. For all the reasons we've discussed previously, from the loss environment to the interest rate environment, we expect continued momentum in the marketplace. Notwithstanding our focus on successfully managing through the pandemic and addressing other headwinds impacting the industry, It's important to note that we haven't been distracted from pursuing our strategic agenda. We remain focused on leveraging our scale and resources to continue to invest and innovate. As we've said before, we believe the winners in our industry will be those with deep domain expertise that can deliver industry-leading results while innovating successfully on top of a foundation of excellence. From a position of strength, we continue to focus our efforts on extending our advantage and risk expertise providing great experiences, and improving productivity and efficiency. In our commercial businesses, we continue to make progress in digitizing virtually every aspect of the value chain, while at the same time enhancing our advanced analytics. Just as one example, our BOP 2.0 small commercial product, which we launched in 2019, benefits from both. In the states in which we've rolled it out, we've seen about a 15% increase in both submissions and new business premiums. This product uses AI and third-party data to improve underwriting segmentation, operational efficiency, and the agent experience. At that point, the artificial intelligence eases the burden on the agent and has resulted in a substantial improvement in classification accuracy. In personal insurance, we're balancing sophisticated total account solutions with streamlined agent and customer experiences. For example, we've completely redesigned the experience of our IntelliDrive AutoTelematics offering and introduced a distraction rating. We rolled this out in nine states during the second and third quarters and have plans to launch in an additional 10 states in the fourth quarter. We're observing a nearly 30% increase in the rate of adoption for IntelliDrive and have received strong agent feedback. Also, in the fourth quarter, we're rolling out an enhanced customer self-service tool in the new mobile app. In our claim organization, we're advancing the rollout of virtual end-to-end claim service tools, embracing the pandemic-driven trends that accelerated digital adoption by individuals and businesses. Customer and agent satisfaction are up, while payout discipline remains strong. To sum it up, we're pleased by our performance in the face of a pandemic and a challenging underwriting environment. It reflects the importance of a strong underwriting culture, the benefit of data and analytics, and the franchise value we offer to our customers and distribution partners. All of that, together with our highly engaged and talented workforce, we're confident that we're well positioned to capitalize on opportunities as the economy continues to reopen. And with that, I'll turn the call over to Dan.