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spk03: Good morning, and thank you for holding. Welcome to the fourth quarter results teleconference for travelers. We ask that you hold all questions until the completion of formal remarks, at which time you will be given instructions for the question and answer session. As a reminder, this conference is being recorded on January 21st, 2021. This time, I'd now like to turn the conference over to Ms. Abby Goldstein, Senior Vice President of Investor Relations. Ms. Goldstein, you may begin.
spk08: Thank you so much. Good morning, and welcome to Travelers' discussion of our fourth 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, Chief Financial Officer, and our three-segment president, 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 marks, and then we will take questions. Before I turn the call over to Alan, I would 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 files 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.
spk06: Thank you, Abby. Good morning, everyone, and thank you for joining us today. Before I address our fourth quarter and full year results, a quick comment on current affairs. Yesterday, we witnessed the most American of events, the peaceful transfer of power from one democratically elected administration to the next. It's not a political statement, but a patriotic one, to say that we want to see this next administration succeed. We have significant challenges to overcome, a pandemic threatening the health and safety of our loved ones and neighbors, a distressed economy imperiling the lives and livelihoods of millions. in a deeply divided society which undermines our collective sense of security and well-being. Let's hope yesterday marks the beginning of our political leaders on both sides of the aisle taking a constructive approach to addressing these challenges. And with that, I'll turn to results. We're pleased to report a very strong finish to the year, with fourth quarter core income of $1.3 billion, or $4.91 per diluted share, and core return on equity of 20.5%, each up meaningfully from the prior year quarter. We're also pleased to report full-year core income of $2.7 billion, generating core return on equity of 11.3 percent, a substantial margin over the risk-free rate and our cost of equity. Our ability to deliver these results in the face of an historic pandemic, a record high number of PCS catastrophe events, and record low interest rates more specifically to our talented and committed workforce, the value of our hard-to-replicate competitive advantages, and our expertise in balancing risk and reward to achieve industry-leading returns over time. The principal driver of the higher level of core income for the quarter was very strong underlying underwriting income, resulting from record net earned premium of $7.5 billion and an underlying combined ratio that improved 3.4 points to an excellent 88.7 percent. We're pleased with the underwriting results in all three segments. We once again recorded the sub-30 consolidated expense ratio for the quarter and the full year, demonstrating that our strategic investments in improving productivity and efficiency continue to pay off. Turning to investments, this quarter, our high-quality investment portfolio performed well, generating net investment income of $572 million after tax. as the non-fixed income portfolio continued to recover from the pandemic-related impacts earlier in the year. Our operating results, together with our strong balance sheet, enabled us to grow adjusted book value per share by 7% during the year after returning $1.5 billion of excess capital to shareholders, including $672 million of share repurchases, which we resumed in the fourth quarter. Turning to production, Notwithstanding the challenges in the economy, we continue to successfully execute in our marketplace strategies to generate growth in the top line. Net written premiums in the quarter grew by 3%, driven by strong little rate change broadly across the book, and continued strong retention in all three segments. Given the headwinds facing the industry, we expect the favorable pricing environment to continue for some time. In business insurance, in our core middle market business, Renewal rate change was a record 9.1%, up 4.5 points over the prior year and about a point sequentially, while retention remained strong. Segmentation in pricing is key in this business, and to that end, the quality of the execution underneath the headline production numbers was excellent. In bond and specialty insurance, net written premiums increased by 12%, as renewal premium change in our domestic management liability business achieved a record 10.9%, driven by record renewal rate change, while retention remains strong. In personal insurance, net written premiums increased by 7%, driven by strong renewal premium change in our agency homeowners business, and strong retention and new business in both agency auto and agency homeowners. Fourth quarter production contributed to full year record net written premiums of almost $30 billion, up 2% compared to last year, Adjusting for the premium refunds we offered to our personal insurance auto customers, net written premiums were up 3 percent, a strong top line result in the context of this year's difficult economic environment. Taking a step back, let me direct your attention to slide 18 of the webcast presentation and put this year's results into a broader context. I've shared before our belief that any commitment to delivering industry-leading return on equity over time requires a strategy to grow over time. To that end, a few years ago, we laid out a strategy to achieve profitable growth in the context of the forces of change we have previously identified as impacting the industry. As you can see on the slide, despite the challenging economic and operating environment, 2020 was another successful year of the execution of that strategy. Since 2016, we have grown net written premiums at a 4.5% compound annual rate substantially outpacing both GDP growth over the same period and our growth rate over the prior years in the decade. We accomplished that while maintaining a stable underlying underwriting margin. In other words, we haven't grown by underpricing the product or changing our risk profile. The growth has come organically from customer segments, products, geographies, and producers that we know well. Over that same period, there are ongoing and relentless focus on optimizing productivity and efficiency. We've also improved our expense ratio by about two points compared to the run rate from earlier in the decade. As you can also see on the slide, the result of all that is significantly higher underlying underwriting income, meaningfully higher cash flow from operations, and double-digit growth in invested assets. have contributed to our ultimate objective of creating shareholder value through industry-leading return on equity over time. Our core return on equity has increased in each of the last three years and averaged 11% over that period. And that 11% is after bearing the impacts of significant CAT and non-CAT weather activity, a meaningful increase in social inflation, historically low interest rates, and a global pandemic. this year and over recent years is the result of a sound strategy and the successful achievement of our strategic objectives looking forward from here thanks to our team our strategy our capabilities and our strong track record of innovation and execution we feel very well positioned to capitalize on the opportunities ahead as the economy continues to recover and beyond Before I turn the call over to Dan, I want to acknowledge and thank my 30,000 colleagues, many of whom were listening this morning, for their tireless efforts over this past year. Notwithstanding concerns for their own safety and responsibilities for taking care of loved ones and educating their children, they never wavered from our purpose of taking care of the people we're privileged to serve for our mission of creating shareholder value. I couldn't be more proud of this team. I also want to acknowledge and thank all those who have been involved in the extraordinary effort of developing and manufacturing COVID vaccines in record time, from the scientists to the regulators to those who volunteered to participate in the trials. It's a remarkable feat. The sight of those vaccines rolling off the line inspires optimism for the coming year, and the sheer human will and ingenuity behind the effort inspire hope for the future. And with that, I'm pleased to turn the call over to Dan.
spk07: Thank you, Alan. Core income for the fourth quarter was $1.2.62 billion, up from $867 million in the prior year quarter, and core ROE was 20.5%, up from 14.8%. The improvement in both measures was the result of very strong underlying underwriting results. Our fourth quarter results include $29 million of pre-tax CAT losses, Recall that last year's fourth quarter CAT losses included a $101 million benefit from recoveries under the underlying aggregate CAT treaty, whereas in 2020, we exhausted the CAT treaty in the third quarter, so there were no recoveries under the treaty in this year's fourth quarter. This quarter's CAT results include about $40 million of favorable development in our loss estimates for events that occurred earlier in the year. PYD in the current quarter, for which I'll provide more detail shortly, was net favorable $180 million pre-tax. The underlying combined ratio of 88.7%, which excludes the impacts of CAPS and PYD, improved by 3.4 points from the prior year quarter. Our pre-tax underlying underwriting gain of $804 million increased by nearly 50% and higher margins, driven by earned pricing that exceeded loss cost trend and continued favorability in personal auto loss experience. Losses directly related to COVID-19 totaled a modest $31 million pre-tax, split about evenly between business insurance and bonded specialty insurance. More than offsetting those losses were lower levels of auto claims in both personal insurance and business insurance. The net impact of the COVID environment on the consolidated underlying combined ratio amounted to a benefit of about two and a half points, mostly in personal insurance. We continue to take a cautious approach in estimating the net impact of COVID-related losses given the ongoing uncertainty in this environment. As has been the case throughout the year, the majority of direct COVID losses that we've booked through year-end remains in IVNR. Looking at the full year net impact of COVID costs and benefits, including the impact of premium refunds to policyholders, our consolidated underlying combined ratio benefited by about a point. The fourth quarter expense ratio of 29.4% brings the full year expense ratio to 29.9%. While throughout the year we continued to make the investments necessary to fuel our continued success, our ongoing focus on productivity and efficiency once again resulted in a sub-30 expense ratio, despite the downward pressure on earned premiums from the impact of a soft economy on insured exposures and the premium refunds we issued to our personal auto customers. We continue to be comfortable with a consolidated expense ratio of around 30%. After-tax net investment income improved by 9% from the prior year quarter to $572 million. The strong returns in the non-fixed income portfolio and the higher level of invested assets were partially offset by the expected decline in fixed income yields. Looking forward to 2021, we expect that after-tax fixed income NII including earnings from short-term securities, will be between $420 and $430 million per quarter, as we project that the benefit of higher average levels of invested assets will be more than offset by a lower average yield on the portfolio, given the lower interest rate environment. Turning to reserves. Net favorable prior year reserve development occurred in all three segments and totaled business insurance, net favorable PYD of $124 million was driven by better than expected loss experience in workers' comp, primarily from accident years 2017 and prior, partially offset by an increase to reserves related to very old years in our runoff book. In bond and specialty, net favorable PYD of $32 million resulted primarily from better than expected loss development in the surety book, and in personal insurance, Net favorable PYD of $24 million was driven by the automobile line. When our combined 2020 Schedule P is filed early in the second quarter, the line of business analysis will provide more detail on the lost trends we've noted in our commentary throughout the year. With favorability in workers' comp, commercial property, and the personal lines coverages, and some strengthening in the commercial liability lines, much of which was in very old accident years relating to our runoff book. Page 19 of the earnings presentation provides information about our January 1st CAT treaty renewals. Our longstanding corporate CAT XOL treaty renewed on terms in line with the expiring treaty and continues to provide coverage for both single CAT events and the aggregation of losses for multiple CAT events. Regarding the underlying property aggregate catastrophe XOL treaty we first purchased for 2017, While the treaty will continue to address qualifying PCS designated events in North America for which we incur losses of $5 million or more, the 2021 renewal includes a $5 million deductible per event. In prior years, PCS designated events that cost us more than $5 million counted towards the treaty from $1 million. The treaty provides aggregate coverage of $350 million, part of $500 million of losses above our aggregate retention of $1.9 billion. The aggregate retention for 2021 increased from 2020's $1.55 billion, largely reflecting recent years experience and anticipated growth in our property book. Hurricane and earthquake events once again have a $250 million per occurrence cap, And for 2021, wildfires are also capped at $250 million per event. Incorporating our assumptions about CAT and non-CAT weather for 2021, we expect the full year impact of the treaty on our underlying combined ratio to be roughly half a point, and we anticipate only a minimal impact on the total combined ratio. Both of those impacts are consistent with the assumptions we had in each of the past two years. Turning to capital management, Operating cash flows for the quarter of $1.9 billion were again very strong. All our capital ratios were at or better than target levels, and we ended the quarter withholding company liquidity of approximately $1.7 billion. For the full year, operating cash flow exceeded $6 billion for the first time ever. It reflected the benefit of continued increases in premium volume, subrogation recoveries from PG&E related to the 2017 and 2018 California wildfires, and lower overall claim payouts as courtroom and other settlement activities slowed throughout the year due to COVID-related shutdowns. Higher levels of cash flow give us the flexibility to continue to make important investments in our business, return excess capital to our shareholders, and grow our investment portfolio. Interest yields decreased modestly as credit spreads tightened during the fourth quarter, and accordingly, our net unrealized investment gain increased from $3.8 billion after tax as of September 30th to $4.1 billion after tax at year end. Adjusted book value per share, which excludes unrealized investment gains and losses, was $99.54 at year end, a 7% increase from a year ago. We returned $419 million of capital to our shareholders this quarter, comprising dividends of $218 million and share repurchases of $201 million. For the year, we returned $1.5 billion of capital to shareholders through dividends and share repurchases. Finally, on a financial modeling note, let me turn your attention to slide 20 of the webcast presentation. As we enter 2021, we again thought it would be helpful to highlight the seasonality of our CAT losses over the prior decades. As shown in the data, the second quarter has regularly and noticeably been our largest CAT quarter. CAT losses in the second quarter have been about twice as much as any other quarter on average, and the second quarter has been our largest CAT quarter in seven of the past 10 years. To wrap it up, we are very pleased with the quarter and full-year results, especially given the challenging circumstances.
spk05: In the fourth quarter, business insurance produced $713 million of segment income, an increase of almost 60% over the fourth quarter of 2019. Higher net favorable prior year reserve development, underlying underwriting income, and net investment income, as well as lower cap losses all contributed to the favorable year-over-year increase. We're pleased with the underlying combined ratio of 93.6%, which improved by 2.8 points from the prior year quarter. We benefited again from earned pricing that exceeded loss trend with an impact this quarter of a little more than a point and a half. There's also a point and a half of improvement due to the favorable comparison to the fourth quarter of 2019, which was elevated due to the re-estimation of losses for prior quarters. Turning to the top line, In light of the ongoing macroeconomic challenges, we remain pleased with the resilience of our business. Net written premiums were only slightly lower than the prior year quarter with strong rate and high retentions, mostly offsetting modestly lower levels of insured exposures as well as lower new business. The lower insured exposures reflect lower levels of economic activity as well as impacts from our active management of terms and conditions in deal structures. including deductibles, attachment points, and limits. Turning to domestic production, we achieved a record renewal rate change of 8.4%, up almost four points from the fourth quarter of last year, while retention remained high at 83%. This quarter marks the eighth consecutive quarter in which renewal rate change was higher than the corresponding prior year quarter. We continue to achieve higher rate levels broadly across our book, as rate increases in all lines other than workers' compensation were meaningfully higher during the quarter as compared to the prior year. Importantly, we continue to feel great about our deliberate and granular execution in terms of rate and retention on an account-by-account and class-by-class basis. The segmentation beneath the headline numbers was once again excellent. Also, one other thing that's not apparent in the headline numbers is the contribution to margins from the active management of terms, conditions, and deal structure that I mentioned a minute ago. We're doing this broadly across the book, but most notably in our national property business. The tighter terms tend to persist beyond the rate cycle. New business of $440 million was down $35 million from the prior year quarter. Given the lower levels of economic activity and given the hardening market conditions, there's a higher proportion of distressed business in the market. Our new business production reflects our disciplined approach to that business. Risk selection is particularly important during circumstances like these. As for the individual businesses, in select, renewal rate change increased to 4.2%, up more than two points from the fourth quarter of 2019 and more than one point from the third quarter of this year. Retention of 77% was down from recent periods, a result of deliberate execution as we pursue improved returns in certain segments of the business. As I mentioned above, we're pleased with the segmented execution underneath the aggregate result. Importantly, we have not slowed down on our commitment to invest in product development and ease of doing business, which position us well for long-term profitable growth in this business. In middle market, renewal rate change increased to 9.1%, while retention remained strong at 86%. Renewal rate change was up 4.5 points from the fourth quarter of 2019 and almost a point from the third quarter of this year. Additionally, we achieved positive rate on more than 80% of our accounts this quarter. a more than 10-point increase from the fourth quarter of last year. To sum up, we feel terrific about our results in execution, especially given some of the unusual economic challenges related to the pandemic. We continue to improve the profitability of the book while investing strategically for the future. These investments include enhancing the experiences for our customers and distribution partners, developing new insights for our underwriters, digitizing the underwriting transaction, and creating efficiencies. Examples of capabilities released this year include rollout of our completely redesigned BOP 2.0 small commercial product, which includes industry-leading segmentation and a fast, easy quoting experience. This new product is now available in 23 states and performing consistently with our expectations. ADVANCEMENT OF OUR INDUSTRY-LEADING STRATEGIC WORK INTAKE INITIATIVES, WHICH ALLOW FOR AUTOMATED RECEIPT OF SUBMISSIONS FROM THE VARIOUS TECHNOLOGY SOLUTIONS OUR AGENT PARTNERS USE, AND THE SEAMLESS ROUTING OF THOSE SUBMISSIONS, WHICH IMPROVES THE EXPERIENCE FOR OUR DISTRIBUTION PARTNERS AND IS MORE EFFICIENT FOR US. ENHANCING OUR MYTRAVELERS CUSTOMER SELF-SERVICE APPLICATION, AND LASTLY, OUR SIMPLY BUSINESS AND ZENSURANCE PLATFORMS CONTINUE TO ADVANCE THEIR DIGITAL CAPABILITIES and offerings in the alternative platform space. We're as confident as ever that strategic investments like these, together with our meaningful competitive advantages, position us well for long-term profitable growth. Concluding, I would like to acknowledge and thank our employees, agents, and brokers for their partnership as we seamlessly delivered virtual solutions for the benefit of our combined customers. With that, I'll turn the call over to Tom.
spk04: Thanks, Greg. Bond and Specialty delivered strong returns and double-digit growth in the quarter, despite the ongoing headwinds of COVID-19. Segment income was $164 million, nearly flat with the prior year quarter, as a benefit of higher business volumes and a higher level of net favorable prior year reserve development were offset by an underlying combined ratio, which, while still strong at 85%, was higher than the prior year quarter. The underlying combined ratio of 3.7 points, driven by the impact of higher loss estimates for management liability coverages, primarily losses attributable to COVID-19 related economic conditions. As we discussed last quarter, the products that we write in this segment are susceptible to elevated loss levels in times of severe economic downturn. We experienced that during the financial crisis and again in recent quarters due to the impacts of the pandemic. Nonetheless, with the strong rate levels we're achieving, we expect that the underlying combined ratio in 2021 will improve a little bit from the roughly 87% in the second half of 2020. Turning to top line, Devrin premiums grew an outstanding 12% in the quarter, reflecting continued improved pricing in our management liability business with nearly flat surety production, despite the continued economic impact of COVID-19 on public project procurement and related bond demand. In our domestic management liability business, we're pleased that renewal premium change increased to a record 10.9%, driven by record high renewal rate change, while retention of 89% remained near historical highs. These production results demonstrate the successful execution of our strategy to pursue rate in light of elevated loss activity while maintaining strong retention levels in our high-quality portfolio. We will continue to pursue rate increases where warranted. Domestic management liability new business for the quarter increased $13 million, primarily reflecting our thoughtful underwriting in this elevated risk environment. Consistent with last quarter, submissions are up, while quote activity is down. So bond and specialty results were again strong despite the challenges brought on by COVID-19. Beyond the numbers, notwithstanding our focus on managing through the challenging environment, we continue to invest in differentiating our businesses in the eyes of our customers and agents and broker partners while positioning ourselves for continued profitability and competitiveness in the future. Some highlights from 2020 include continuing investments in our surety business to help our contractor clients more effectively manage risk while providing insights that will enable them to more profitably manage their business, piloting digital platforms that will improve the speed and convenience of accessing management liability and small charity products for our agents and brokers and investing in a new sales management platform that will enhance productivity, optimize workflow management, and increase sales. Lastly, I'd like to thank our employees and distribution partners for their commitment to creatively and effectively addressing the needs of our customers in these most unusual times. And now, I'll turn it over to Michael to discuss personal insurance.
spk12: Thanks, Tom, and good morning, everyone. In personal insurance, we're very pleased with our fourth quarter and full year results. For the fourth quarter, segment income increased to $457 million, and our combined ratio improved to 84.1%. Full year segment income was $1.2 billion and the combined ratio was 89.7%. The significant improvement for both periods compared to the prior year is primarily driven by lower frequency of automobile losses, as well as the benefit to underwriting income from higher business volumes. In addition, the full year results include higher net favorable prior year reserve development and elevated catastrophe losses. Net written premium growth for the fourth quarter and full year was 7% and 5% respectively, with continued strong retention and higher levels of new business, resulting in record net written premiums of more than $11.3 billion for the year. Agency automobile profitability was very strong, with a combined ratio of 86.5% for the fourth quarter. The underlying combined ratio for the quarter improved 12 points, continuing to reflect favorable frequency levels. Approximately one-third of the improvement in the quarter is from favorable re-estimates of activity for prior quarters in 2020. We continue to observe lower claim frequency as a result of fewer miles driven, reflecting the ongoing impact from the pandemic. We will continue to analyze and incorporate current trends into our state-specific underwriting and pricing decisions as we balance business volumes and profitability. In agency homeowners and other, the fourth quarter combined ratio of 81.9% increased relative to the prior year quarter, driven by a higher underlying combined ratio and an increase in catastrophe losses. The fourth quarter included one catastrophe, Hurricane Zeta, with no recoveries from the Catastrophe Aggregate Reinsurance Treaty. The underlying combined ratio of 78.5% was five points higher than the prior year quarter due to higher non-catastrophe weather related losses and to a lesser degree increases in other losses, specifically elevated fire losses. The full year combined ratio of 93% was comparable to the prior year with increased favorable prior year reserve development and improved underlying results offset by elevated catastrophe losses. The underlying combined ratio of 82.9% was almost three points better than last year, driven by lower non-catastrophe weather-related losses. This improvement demonstrates the success of our continuing efforts to improve returns in property while growing the business. Turning to quarterly production, overall results were again very strong. We're pleased with our momentum in agency automobile. Retention was 84% and new business increased 12%. contributing to the 3% year-over-year growth in policies enforced. Renewal premium changes were lower, given our pricing actions in response to the favorable loss environment. We continue to see growth in this profitable line. Agency homeowners and others delivered another excellent quarter, with retention of 85% and a 21% increase in new business, while renewal premium change again exceeded 8%. Policies enforced were up 8% from a year ago. These results reflect our continued efforts to grow while improving profitability. Looking back, 2020 was both a challenging and successful year for personal insurance. We achieved record levels of segment income, net written premium, and policies enforced. Our continued success reflects the execution of our strategy to meet customers where they are, give them what they need, and serve them how they want. Examples include nearing completion of our Quantum Home 2.0 rollout, which is now available in over 40 states. Increasing the take-up of IntelliDrive by enhancing our auto telematics offering in 17 states. And just this week, we introduced IntelliDrive in Canada as well. Improving our customer self-service capabilities with our new MyT mobile app, which will be rolled out more broadly throughout the first quarter of 2021. planting an additional 500,000 trees for customer enrollment and paperless billing, bringing the total number of trees planted through our partnership with American Forest to 1.5 million, and just recently announcing the acquisition of Insuramatch, an innovative digital online platform that allows customers to compare offerings from more than 40 carriers across the United States. We expect to complete the acquisition in the first quarter of 2021, subject to customary closing conditions. Before I wrap up, I'd like to add my thanks to our team and our distribution partners for continuing to deliver value to our customers despite a challenging and uncertain environment. We have strong momentum going into 2021 and are well positioned to deliver profitable growth while investing in capabilities that will continue to enhance the value of our franchise. Now, I'll turn the call back over to Abby.
spk04: Michael. quickly and mention that I did misspeak when I was discussing management liability new business. I believe I said it increased by $13 million, and it is actually decreased by $13 million.
spk08: Thanks, Tom. Thank you. And, operator, we are now ready to turn to questions.
spk03: Certainly. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. To remove your question, press the pound key. In the interest of time, and to allow everyone an opportunity, please limit yourself to one question and one follow-up. Our first question comes from the line of Michael Phillips with Morgan Stanley. Your line is open. Michael Phillips with Morgan Stanley. Your line is open. Yeah, hi, everybody.
spk16: Can you hear me?
spk06: We can. Good morning.
spk16: Good morning. Thanks. I've had a choppy connection, so I apologize if you couldn't hear me. Congrats on the quarter. I guess we'll start on business insurance. You know, we're seeing a nice improvement still in the core margins. A bit of a slowdown, I guess, in the renewal rate change. You know, still strong. It's your high, as you said, in quite a while, but a bit of a slowdown from prior quarter. I guess any reason to think, and I think, Alan, you said, again, I'm sorry, I was a bit choppy. I think you said you expect rates to continue to move up, if I heard you correctly. I guess given the margin improvement and what I've seen is a bit of a slowdown in the renewal rate change, is there any reason to not think we're close, if not already at a peak in pricing for business insurances?
spk06: You know, Michael, we're at record levels and we're compounding on compounding. So it's hard to look at this execution and find any negative in that. And from here, you know, the outlook is positive. Also, on the historical numbers, the segmentation is really important. And I think the point Greg made in his prepared remarks about the benefit of tightening terms and conditions and other levers. So all that's really important. And from here, I think this plays out for a while, and it's a function of rate acquisition. All the drivers are environmental. So primarily loss activity, think about social inflation, think about weathers, think about wildfires. You've got interest rates that appear to be lower for longer, cost and availability of reinsurance, pandemic losses impacting the industry, and I suspect for some markets maybe still reckoning with social inflation. So I expect the favorable rate environment to continue and to persist at levels that will result in expanding margins for a while.
spk16: Okay. Thank you very much for that. And then second question, I guess, Greg, you mentioned, I apologize, also a little bit choppy, but you mentioned comp. In pricing there on comp, you know, we're hearing from external sources and a lot of the market's results that there's been a bit of inflection in comp pricing, not much, but a bit of a turn at least. I guess, what are you seeing in comp? Your PYD there was strong. Loss trends seem to be pretty favorable there. So maybe comment on if you are seeing a bit of a turn in pricing in comp, kind of what's driving that, and should we expect that to last given the loss trends that seem to be pretty favorable there as well? Thanks.
spk05: Yeah, good morning, Michael. This is Greg. Yeah, we continue to think we are at or near a bottom in workers' comp, and the evidence that we look at is the Bureau of Lost Cost Recommendations and our own rate structure. And so, yeah, we continue to believe that. And I'll just remind you that we are an account solution, and we feel terrific about our entire book of business. Workers' comp is usually just one of the many solutions that we're offering our customers. But, yeah, we continue to believe we're at or near the bottom.
spk03: Okay, great. Thank you, Greg. Your next question comes from the line of Ryan Tunis with Autonomous. Your line is open.
spk14: Hey, thanks. Good morning. Just a question for Alan. I guess I haven't seen the 4Q numbers, but through the third quarter, you had really substantial increases in IB&R and, you know, economically exposed lines like commercial auto and GL. You know, so obviously reported claims have been slow to come in relative to your picks. I guess I'm curious what you're learning, you know, as courts reopen and things like that. Is that still starting to look conservative or, you know, are you seeing a higher pace of reported claims that would support those initial loss estimates?
spk06: So, Ryan, I think the best way I can explain it is, you know, obviously going back a few years, we saw some elevated loss activity. We responded to that over a couple of quarters. And I'd say that more recently we've been sticking to that higher level. And, you know, what we're seeing in the data, frankly, might be a little bit favorable to what we would have expected, but we're not responding to that because – We think there is some disruption in the data, and so for now we're going to stick with our view of the longer-term trends. Is that responsive?
spk14: Yeah, yeah, that's helpful. And then I guess for Greg, just looking at the growth in business insurance, similar to last quarter, but it looked like some of the KPIs looked better. Exposure was a little bit better sequentially, and even new business wasn't down quite as much. It looked like a lot of that was workers' comp. I'm just trying to think about, you know, how are we trending into 2021, you know, based on what you're seeing relative to the negative 3% that we posted here in the fourth quarter?
spk05: Yeah, as you said, Ryan, we have seen improvement in exposure as the economy starts picking up. We've shared with you for some time now that we do believe we're highly correlated with the overall GDP in terms of the GL workers comp, the rateable products that follow payrolls and sales receipts of that sort. And so as that starts picking up, we believe we'll see some, as we're starting to see in our book already, some improvements in our production, specifically through the exposure metric.
spk06: I'll just add to that, Ryan, that our book is – Greg's point is exactly right. There's a correlation there. But I just think given the high quality of accounts and business that we write, we've actually done a little bit better than even we might have thought related to relative to economic activity. Thanks.
spk01: Thank you.
spk03: Your next question – comes from the line of Tracy Benjiji with Barclays Research. Your line is open.
spk10: Thank you. Good morning. In the tort liability arms rates, who's ahead, pricing or loss trend? I guess I'm mindful that the economic slowdown just means less court activity.
spk07: Tracy, it's Dan. You broke up a little bit at the beginning of the question. Do you mind repeating that?
spk10: Absolutely. Apologize for that. Just thinking about the tort liability arms race, we think about it in a race. Who may be ahead, pricing or loss trend? I guess I'm mindful that given the economic slowdown, there's less court activity.
spk07: Yeah, so remember, Tracy, when we talk about loss trend in BI, that's all in, and that's including our clients. more recent views over the last couple of years of, you know, elevated loss environment for things like social inflation. And so when we're looking at, you know, the written and now earned rate numbers that are coming through business insurance, that's clearly ahead of loss trend. I think to your second point, You know, we are looking at the data as it comes in now and not assuming that that's the new normal. We assume that what we're seeing is slower levels of claim payments that won't necessarily ultimately be lower levels of claim payments. So we've stuck with our more normal long-term view that we think those loss costs are higher. But having said that, where rates are now, we think rates are at a loss trend.
spk10: Okay, excellent. And then for my follow up, Greg was talking about improvement in terms and conditions. Wondering if you could just unpack that, maybe give an example. Like I've heard on the reinsurance side, they've been a little bit tighter on silent cyber. I don't know if Tom had any views for management liabilities.
spk05: Yeah, sure, Tracy. I'll just give you a sense. You have two different dynamics between the property and the casualty lines. Property, you have a lot more opportunity on terms and conditions. Think deductibles, insured to value, margin clause, language changes that help improve the margins for us and provide some coinsurance back to the customer. In terms of, you know, I referenced the term deal structure. You can think of that more on the casualty side. And so, you know, umbrella, you know, attachment points are increasing and limits management, making sure that we're putting very thoughtful capacity around the limits that we offer. So that's some of the activity that we're doing across the portfolio.
spk06: And Tracy, just to give you a specific example, because you asked for that, you know, we do think about and we do add, for example, communicable disease exclusions in, you know, industries and segments and customers where we think that's important to do so. Tom? Yeah.
spk04: And the way it looks really in the management liability businesses is the focus has been largely on pricing, but certainly a lot of work on deductible self-insured retentions and limits coming down in a number of cases. And if we are really going to see a change of policy terms in the near future, cyber would certainly be the most likely place where that
spk09: Thank you.
spk03: Your next question comes from the line of Elise Greenspan with Wells Fargo. Your line is open.
spk09: Hi, thanks. Good morning. My first question was on the business insurance margin. You guys said, I believe, 150 basis points, a rate exceeding trend in the quarter. Was there anything else like one-off that stood out within the margin? And then could you give us a sense of the net, sorry if I missed it, the net COVID benefit, including the frequency impact with NBI in the quarter?
spk07: It's Dan. I'll take that. So price versus trend, I think Greg's comments was a little more than a point and a half. So think about that as being between a point and a half and two points. The other thing that Greg called out, which, You know, we would say in terms of the comparison might be a little unusual. As remember, in last year's fourth quarter, we told you we took about a point and a half of sort of prior quarter catch-up as we adjusted our view of the liability loss ratios last year. So that impacted the year-over-year comparison as well. To the COVID question, very modest as it was last quarter. So not really big enough to mention a small favorable, but think about that in the tenths of points,
spk09: Okay. That's helpful. And then my second question is on the expense ratio side. I think last quarter you guys have pointed to kind of, you know, seeing like around 30 is like a good run rate, but you continue to come in better than that. And especially within business insurance, the expense ratio, you know, continue to improve this quarter like it did last quarter. Is there something related to COVID and expenses or, you know, it's a, kind of expense ratio will be moved down a little bit when we think about where you guys can come in on a go-forward basis.
spk07: Yeah, Lisa, you know, COVID has had some pluses and minuses on the expense side. On the one hand, there have been some higher provisions for things like bad debt, but there have been savings and things like travel and expense. When you step back and look at The full year and on a consolidated basis, I'm not at all surprised where we were. I think, you know, coming out of last year, we said we'd be happy with something around a 30. The full year this year is a 29.9. I said again in my comments, we're probably pretty comfortable at this level. So I think we've said all we're probably going to say on what we're thinking about expense ratio.
spk09: Okay. Thank you for the color.
spk07: Thanks, Louise.
spk03: Your next question comes from the line of Jimmy Buehler with JP Morgan. Your line is open.
spk01: Hi, good morning. So I had a question first on just your views on business interruption exposure, and it seems like it's sort of trending in the favor of the insurance industry so far, at least in the U.S., but what your view is in terms of your exposure and whether the FCA decision makes you reassess your exposure in Europe?
spk06: Good morning. Our view on business interruption exposure for us remains unchanged. There's nothing in that SCA decision in Europe that caused us to think any differently about our exposure or the reserves that we've put up for it. More recently, there was a decision earlier this week in Ohio related to another insurance company that was adverse to that company. And generally speaking, we prefer not to comment on pending litigation, whether it's ours or anyone else's. But since you asked the question, I would just point out that our standard policy language is different from the language at issue in that case in some very key respects. And so in Ohio and elsewhere, we remain very confident in our policy language and feel no differently about our business interruption exposure. And I guess I would just caution everybody to keep in mind that over the last few months and across the country, the vast majority of these cases have been in the favor of insurers.
spk01: Okay. And then secondly, just what are your views on pricing and commercial auto? Obviously, recently litigation activities declined a lot, but do you think prices have caught up to lost costs if sort of social inflation litigation go back once the virus sort of abates?
spk06: You know, Jimmy, there's just not much more competitively sensitive than our pricing strategy, so I think we're going to probably stay away from where pricing is going by line, but I'll just reiterate what we said before, which is we think this is a favorable pricing environment that's going to play out for a while, and it's a function of rate adequacy, and there still is a rate need in commercial audit. So, you know, to one degree or another, we will continue to, I think, benefit from the rate environment in commercial audit.
spk01: Okay, thanks. Thank you.
spk03: Our next question comes from the line of Mike Saramsky with Credit Suisse. Your line is open.
spk19: Hey, good morning. Thanks. First question, thinking about top line versus kind of buybacks, you know, I recall a number of pre-COVID cases You guys kind of talked about, you know, given top line was picking up, just, you know, you wanted to make sure we understood that, you know, buyback levels might not resume at the same ratios as in the past. Kind of trying to think through the dynamics going forward. You know, earnings are healthy and improving, but the top line is still, you know, I'm not going to put words in your mouth, but it seems, you know, maybe still to be a little weak due to the economy. So do you Should we be thinking that there might be more room for buybacks in the near term?
spk07: Hey, Mike, it's Dan. I think you're thinking about the right dynamics. I don't know that it necessarily leads you to a conclusion about what we're going to do in the near term. And again, we're going to think about this over a longer period of time. To the degree that, as Alan commented, we have experienced and been able to generate More top line growth in recent years than we had historically. The current COVID environment sort of notwithstanding. You know, that's that's something that we look to do on a go forward basis. And even this year, you know, plus 3% when you adjust for the personal insurance auto refunds that we made. The comments that we made a year or so ago would still hold true. I think to the degree that the top line grows, that's going to require us to hold more capital. capital grows with it, reserve balances grow, your investment portfolio grows. And the only point we were really trying to make when we made those comments a year or so ago was don't think about us perpetually being able to return 100% of earnings in the form of dividends and buybacks. We're going to have to hold some of that for growth. So that would still be true. Um, the amount by which, you know, we would have had to increase capital this year might be slightly less than we would have expected, you know, coming into the year because COVID had a little bit of a dampening effect on the top line, but directionally all those same themes would still hold true.
spk19: Okay. Understood. That's helpful. And, uh, lastly, um, shifting to workers comp specifically, um, I guess, you know, some firms have talked about, and it sounds like you guys, too, are, you know, they talked about less claim frequencies during the pandemic, but, you know, still kind of holding, you know, you said, too, like, broadly in the BI segment, kind of still holding your picks conservatively. You know, historically, have you seen kind of a more of a catch-up or later claims filings in workers' comp, maybe after previous recessionary periods? Is that, you know, a dynamic you guys are contemplating?
spk06: Yeah, let me just give you a little bit of color on how we see and are thinking about the workers' comp loss activity. So first of all, the The COVID-related claim rate is relatively low relative to the infection rate and lower than we might have expected. And the severity on COVID-related workers' comp is also coming in a little better than we had thought. There is, you know, there continues to be some benefit from non-COVID-related frequency as people are working from home. But There still is, in our minds, a degree of uncertainty to your point about how COVID-related workers' comp claims are going to play out over time. So we've been pretty cautious in the way that we've been booking for workers' comp losses to make sure that we don't get surprised by that. Now, historically, putting COVID aside, historically in a recession, you get sort of offsetting forces in workers' comps. You've got people who want to stay on the job, so they're less inclined to go out, and so frequency is down a little bit. But severity goes up a little bit because once people go out, they tend to stay out longer on workers' comp. Historically for us, in recessionary periods, the net of those two things have been a little bit of a positive. I mean, every circumstance is different, and so hard to know for sure, but that's generally what we've seen in the past. And so I think that's sort of the landscape as we see it on workers' comp loss activity.
spk19: And, Alan, not a follow-up to a follow-up, but just you, I was kind of trying to allude to figure out post-recession, did you see a kind of a jump or any kind of spike in frequency? I appreciate the comments about during the recession there was a net benefit. Just curious if there was kind of a catch-up historically post-recession.
spk06: I just don't have that data in front of me from prior recessions, and so I'm a little hesitant to shoot from the hip. I'm just not sure. I mean, as we're looking around the room at each other, I don't think there's anything that we think would be all that particularly significant. But again, I just don't have the data in front of me to be responsive to that.
spk19: Thank you.
spk06: Thank you.
spk03: David Miltman with Evercore. Your line is open.
spk18: Hi, thanks. Good morning. I guess just another question on the business insurance underlying loss ratio and I guess 150 basis points of core improvement now in 4Q. That's improved. I think last quarter you said it improved 100 basis points year over year. I guess as we think about obviously rate earning in above the 5% loss trend, is there any reason to think that that shouldn't continue to accelerate as we head into 2021?
spk07: Hey, Stan. You know, all those being equal, no, we can see mathematically, you know, I think what you've seen in the last couple of quarters is what a point where, you know, written rate was reaching or exceeding loss trend, and that would start to come through on an earned basis. To the extent that, you know, written pricing has continued to increase, we would expect the earned impact of that to continue to increase on a lagging basis. Again, all else being equal, and, you know, rarely is all else equal, but...
spk18: Right. Okay. Thanks. I appreciate that, Dan. And I guess, Greg, just a question on exposure growth and specifically you had mentioned the dampening impact of terms and conditions and the impact that that had on exposure growth. I guess maybe is there any way to quantify that? And maybe, you know, as we think about heading into, you know, 2021, You know, any sort of view in terms of how this may impact, you know, terms and conditions may dampen exposure growth as we enter into 2021. Hey, David.
spk05: It's Greg. Yeah, that's just competitively sensitive. So, you know, we give you exposure overall. We give you rate. We give you RPC. But we really don't break down exposure in terms of the insured exposure versus, you know, deal structure in terms of conditions. So that's just something we don't provide.
spk03: Okay, that's fair. Thank you. Thank you. Your next question comes from the line of Brian Meredith with UBS. Your line is open.
spk02: Hey, thanks. The first one, Greg, just on the select business, if I take a look at the retention rates, you know, dropped pretty meaningfully from the second quarter. I guess my question there, is that due to just the economy and the impact that's having on small businesses or Or is it that you're kind of pushing rate terms and conditions here, and that's having an effect on your retentions? And at what point do you need to lay off maybe a little bit to kind of get that retention ratio back up?
spk05: Yeah, good morning, Brian. Yeah, it really is a combination of both our profit improvement initiatives, which isn't just for Select, as we've been sharing this across the entire BI portfolio. But when we look at the uptick in rate and the offset in retention, our product managers and underwriters can see the the variance and the loss ratios versus what we retained and what lapsed, and we feel very comfortable with the tradeoff between those two. So we're going to continue to improve the margins on that select business. And then in terms of your comment on the pandemic, we've certainly seen since the pandemic the select business has felt the flow the most reduction with the pandemic on smaller businesses. And so new business has absolutely felt that, but we feel great about the quality of the new business that we are writing in the select business right now.
spk02: It affected your retention too, couldn't it?
spk06: Sure, sure it could, yep. Just to put a finer point on Greg's comment, which I agree with, we've been at these types of retention levels before in select, so this isn't an unusual place for us to be and And I guess, you know, you're all looking at headline numbers. We're looking at a very granular set of data underneath that shows us exactly what the execution is in terms of rate, retention, loss ratios. So we feel very, very good about this execution.
spk02: Great. And then my follow-up here, you know, Alan, How are you all thinking about potential liability exposures to back-to-work plans as eventually the economy reopens? And do you have protections in some of your policies to maybe mitigate some of that exposure? What are your thoughts on that?
spk06: Yeah, it's a great question. I'm glad you asked. We would have hoped that there would have been some federal liability protection. I just think given the way things have played out, that's probably less likely to happen. But there are a couple of things that still help. One, there have been a number of states, I think more than 30 states, that in one form or another have taken some kind of action to provide some COVID liability protection. At the federal level, we've got a more right-leaning bench today than we did four years ago, certainly, so that helps a little bit. And then we can address it through things like rate and risk control and risk selection. And as I mentioned before in some industry classes today, You know, we have started to put in communicable disease exclusions where we think that that could be important. So, you know, it's an exposure. It's out there. I think it's unfortunate because I think it's the plaintiff's bar that benefits at the expense of economic recovery, but we'll manage to do it just fine.
spk02: Great. Thank you.
spk06: Thank you.
spk03: Our next question comes from the line of Josh Shanker with Bank of America. Your line is open.
spk17: Thank you, I want to talk about doing this.
spk07: In the national account here. Hey Josh, we can't hear you at all. OK.
spk06: Hey Josh, are you there? Why don't we? Why don't we call the baby? Yeah, go ahead.
spk17: Sorry about that. I guess those headphones don't work that I was trying to use. Okay. The $0.50 solution. Anyway, an area that doesn't really get enough attention, national accounts, because we always talk about business insurance ex-national accounts. Can we talk about what is the trend there in terms of premium? How much of the fall off in that area do you think is temporary? How much comes back? What's the distribution of that business in terms of premium volume? to think about as we get to the end of COVID, I guess.
spk05: Hey Josh, this is Greg. Yeah. Yeah. National accounts was, was down 5% for the year. And that's a business where a couple of large accounts can make up a quarter or a year. And that was the case for us in 2020, where we just had more lost larger accounts than new. And we felt that on the top line. Now, as you said, that it's an important part of our portfolio where, We're encouraged around the national accounts, and we've recently relaunched a service entry for claim service, and we continue to invest in it. It's an important part of our portfolio.
spk17: And to the extent in terms of the accounting for that, I think there's a lot of audit accounting. Are we still in the audit accounting phase for that, and now we're earning through, and as the economy picks up, we'll see audit accounting go the other direction? How should we expect that to trend?
spk07: Josh and Stan, I'm not quite sure I understand your question, but to the degree that a lot of our business insurance accounts are subject to audit, including some business and national accounts, generally speaking, in this year, we've seen a lower level of audit premium additions, not surprisingly given the lower level of overall economic activity. I don't have the data in front of me. I don't know that we've heard anything that's particularly different in the national accounts front than, say, in middle markets. So I think broadly speaking, we've seen, you know, audit premium activity behave probably not surprisingly in response to what you're seeing in the more general economy.
spk17: Yeah, I guess I'll stop. But are we more or less through the audit account period by 4Q where it was a in 2q and 3q and and now the uh the sort of premium submissions are in line with with the exposures or are we still at a period of time where we're seeing that headwind comes through on your premium numbers due to weaker audit accounts yeah and and i'd be careful about thinking headwind in terms of year over year there's less
spk07: audit premium than there was last year. We haven't yet reached the point where in aggregate audit premiums have turned negative. They're just lower positive. So it impacts the growth rate year over year. And to your point, it will continue for a while because in many cases you're doing audits, you know, 15 months after the policy terms were set in the first place. And so there's still a while to work through the COVID impact on on policies that haven't yet reached that maturity level.
spk17: All right. Well, thank you. I'll probably have some more questions, but I'll take them offline. Thank you very much.
spk15: Thanks, Josh.
spk03: Your next question comes from the line of Mayor Shields with KBW. Your line is open.
spk15: Great, thanks. So one quick question on personal insurance and then a follow-up on business insurance. Michael, are you pricing auto for normalized driving, or are you trying to adjust pricing if for sort of the short-term but fluctuating driving behavior that we're seeing during COVID?
spk12: Sure, Josh. Yep, this is Michael. I would say that, you know, we are, as I mentioned, sort of continuously adjusting pricing levels to reflect our outlook. And again, driving levels have continued to be depressed. Therefore, frequency levels have continued to be depressed. And And our view is that, you know, in 2021 that will start to normalize, but we think we're going to be at depressed driving and frequency levels for a period of time. And so we are factoring that into our pricing. And, you know, as I mentioned last quarter, we filed a handful of decreases in about five states in the fourth quarter. And we have, you know, some more planned in the first part of, of 2021, again, to respond to that better than long-term normalized loss experience.
spk15: Okay, that's helpful. And then I guess a follow-up for Greg. I'm wondering whether it's fair to say that maybe business insurance results were better than they look because presumably there was some headwind from the exposure that acts like trend and because also presumably workers' compensation represented a smaller percentage of earned premiums. And I hope you can comment on those two factors.
spk07: Hey, Meyer. It's Dan. So, mix will contribute as you suggest, right, to the degree that there are different loss ratios and different parts of the book are growing at different paces. That's going to have an impact. I'll jump in here on this one because on the exposure front, you know, we've said, you know, when exposure is positive that a portion of exposure behaves like rate and therefore can be helpful to margins. It's not necessarily the case that when exposures are modestly negative, as they are here, that the same holds true on the inverse. Here what you're seeing is generally lower levels of insured exposures, you know, fewer employees, lower levels of cash register sales, things that drive, you know, GL-type exposure. Unless you actually got to the point where, say, there was wage deflation and the price per risk was going down, at least at this point, have the same kind of adverse impact on margins from negative exposures that should do a help to margins when exposures are running positive.
spk03: Okay, fantastic. Thank you. Your next question comes from the line of Paul Newsom with Piper Sandler. Your line is open.
spk13: Good morning, and congratulations on the quarter. Quite remarkable. Great. You made a comment about a higher proportion of distressed business in the market, and I just want to make sure I was interpreting the comment correctly. Are you talking about essentially more of the business going into excess and surplus lines, or are you thinking more along the lines of just the businesses themselves are struggling with the economy?
spk06: Paul, let me just jump in and I'll let Greg fix whatever I get wrong. But I think neither actually. In a market like this where, you know, in some cases you've got some capacity issues, where you've got firming rate, distribution generally is solving problems in the market. And so the accounts that end up in the market for trading are just more difficult risks to write. So it's not that it's necessarily moving to E&S and it's not they're you know, businesses necessarily with economic issues. These are just, you know, difficult from an insurance risk perspective.
spk13: Okay. And then just to quickly, investment income was also very, very strong, I thought. Anything in there? We've been so focused on underwriting. Anything in there that we should...
spk07: you know consider this as a is it a good run rate or is there anything we should just be taking notable investment income results hey paul it's dan so i i guess i'd point you to the the net investment income uh slide in the webcast presentation and We gave you some outlook in terms of what we think the run rate looks like for the fixed income portfolio. The variability that we've seen in the last three quarters has really been in the non-fixed income portfolio. And so if you look at the bottom right-hand quadrant of that chart, it shows non-fixed income over the last eight quarters or so. And what you can see is sort of pre-COVID, that was the last three quarters pre-COVID had been $70 million or so of of non-fixed income. Then you see a big dip in the second quarter. And remember, at that time, we talked about that was the impact of the disruption to the equity markets that happened in the first quarter coming through our results on a lagging basis in Q2. And then as markets have come back, we've seen some of that rebound come through our numbers. And so what you see in Q3 and Q4 are very strong results in take that as indicative of a new run rate on the non-fixed income piece.
spk13: Great. Thanks, folks, and congrats to the court again.
spk07: Thanks a lot.
spk03: We have time for one final question. Phil Stefano with Deutsche Bank, your line is open.
spk00: Yeah, thanks for squeezing me in at the end here. So you had mentioned the court case in Ohio and that there's a difference in the terms and conditions, and I was hoping you could just – remind us what the difference in the policy wordings is that continues to give us this confidence that the BI issue is less so for travelers than it might be for others, just given, you know, how that court case went.
spk06: So circumstance subject to continuing, you know, pending litigation. So I'm hesitant, particularly without the policy wording, you know, theirs or ours, frankly, right in front of me to start parsing the language for you. So maybe we can take that offline and figure out a way to do it, but probably right now it's not the right venue. I will say we've said from the very beginning that we've got confidence in our policies and the way we think it would respond to business interruption. So far, in virtually every case we've had, we haven't had a bad outcome anyway. So, I think I'll just reiterate our confidence in the language that we have and say that we don't feel any differently about our business interruption exposure and leave it at that for now, if that's okay.
spk00: No, that's fine. I figured that was the answer, but it's always worth a shot. The second follow-up for you, just looking at the underlying loss ratio in auto and trying to compare and contrast third quarter to fourth quarter results. it felt like we had the story of miles driven being down, auto accident frequency benefiting, but we're looking at a difference of 700 basis points, give or take, of underlying. How much of this is miles driven coming back? How much of this is potential short-term pricing actions that you're contemplating? How do we look at these two quarters to help us as a base for what the forward COVID impact could be?
spk07: Phil, it's Dan. Let me jump in. I think we look at both of the last two quarters as extremely good results. And the third quarter was maybe an outsized good result. Remember, as we've gone throughout the year, we've been trying to set our expectation of when you look at miles driven, when we then filter that through, what are the specifics of our book? What do we expect to see for losses then as results? Months and quarters go by, you know, losses actually emerge. So it's a little bit of a moving target. The, the variances have been significant. I wouldn't put a tremendous amount of stock in, you know, the difference of what came through the loss ratio and in 1 quarter versus the next, I think. You know, as Michael probably indicated, and as you would, you know, not be surprised by on a go-forward basis, we wouldn't expect margins to continue to be that strong in auto. And you see that reflected in our pricing actions in the most recent quarters. So I'd step back more and think about the year in aggregate, which has definitely had a benefit from the COVID environment. And recall that in response to that, we've also returned more than $200 million of premiums to policyholders. I don't know if I can give you any more specific answer than that.
spk00: No, great. Thanks.
spk03: The question and answer session has ended. It is now my pleasure to turn the call back over to Abby Goldstein for final remarks.
spk08: Hi. Thank you all again very much for joining us. We appreciate that. And as usual, if there's any follow-up, please get in touch directly with Investor Relations. Thanks and have a great day.
spk03: This concludes the Traveller's Fourth Quarter 2020 Results Conference call. We thank you for your participation. You may now disconnect.
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