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 instructions for the question and answer session. As a reminder, this conference is being recorded on July 21st, 2022. At this time, I would like to turn the conference over to Ms. Abby Goldstein, Senior Vice President of Investor Relations. Ms. Goldstein, please begin.

Thank you. Good morning, and welcome to Travelers' discussion of our second quarter 2022 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 Kozlowski of Business Insurance, Jeff Clank of 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 your 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 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. Thank you for joining us today. We are pleased to report a very strong second quarter, including an excellent bottom line result, double digit top line growth in all three segments, strong and improved profitability in our commercial business segment, progress addressing mental headwinds facing the personal insurance industry, a meaningful contribution from net investment income, and another quarter of progress on a number of important strategic initiatives. Core income for the quarter was $625 million, or $2.50 per diluted share, generating core return on equity of 9.3%. These results were driven by record net earned premiums of $8.3 billion, up 9% over the prior year quarter, and a solid underlying combined ratio of 92.8%. Environmental issues impacting the insurance industry, the consolidated results reflect the benefits of our diversified portfolio of businesses. For the six months ahead of the prior year, $1.66 billion, an excellent first half result. We're particularly pleased with the continued strong underlying results in our commercial businesses. Looking at the two commercials together, the combined BI-BSI underlying combined ratio was 3.7% for the quarter, an improvement of a point from the prior quarter. The projected results in personal insurance were impacted by elevated severity in both auto and home. As you'll hear from Michael, we're on the right track in addressing the environmental issues. Excellent operating results together with our balance sheet enabled us to grow adjusted book value per share by 10% over the past year. After making important investments in our business, we returned excess capital to shareholders. During the quarter, we returned $725 million of excess capital to our shareholders, including $500 million of share repurchases. Turning to the top line, thanks to excellent execution by our colleagues in the field and the strong franchise value we offer to our customers and distribution partners, we grew net written premiums by 11% this quarter to a record $9 billion, with, as I mentioned, each of our three segments growing double digits. In business insurance, net written premiums grew by 10%. Renewal premium change was 10.3%. That's the fourth highest quarterly renewal premium change going back more than 15 years. Renewal premium change included a renewal rate change of 4.9%. Both measures moved up from the preceding quarter. Retention remained very strong at 86%. We have a high-quality book of business and keeping it as a priority. Also, as we've shared previously, strong retention is a sign of a rational and stable pricing market. Underneath the headline numbers, execution in terms of rate retention at a segmented level was excellent. In bond and specialty insurance, net written premiums increased by 13%, driven by excellent production in both our surety and management liability businesses. Surety net written premiums were up 24%. Management liability premiums were up 7%, driven by a real premium change of 8.8%, retention that increased to a very strong 88%, and strong new business. In personal insurance, net written premiums increased by 12%. We know premium change was meaningfully higher both year over year and sequentially in auto and homeowners as we continue to execute to improve returns. You'll hear more shortly from Greg, Jeff, and Michael about our segment results. Turning to investments, our high-quality portfolio generated net investment income of $595 million after tax for the quarter, reflecting reliable results from our fixed income portfolio and another quarter of strong returns from our non-fixed income portfolios. Speaking of investments, given the potential for a difficult economic environment to head, we've included on page 19 of the webcast presentation a slide breaking down the composition of our investment portfolio. Consistent with our long-time focus on risk-adjusted returns, we're underweight compared to most in terms of risk assets as a percentage of shareholders' equity. Our investment philosophy has served us well over many years and through many different market cycles. It starts with asset allocation. More than 90% of our $80 billion portfolio is invested in fixed income securities. That sets us apart. Inside that, we also have relatively high allocation to municipal bonds, where the default rate has been meaningfully lower as compared to corporate bonds. Even within munis, we're discriminating. We are invested in only about 1,000 municipal issuers out of an estimated 80,000. Virtually all of our municipal bond holdings are rated AA- or higher. Our corporate bond portfolio is curated with the same level of discipline. Virtually all of it is investment grade, and within that, we are meaningful overweight AA and single A credits and meaningfully underweight BBB credits. During times of economic distress, credit quality is key, and then the sometimes foreseeable and sometimes unforeseeable lead up to those times. When spreads widen and volatility increases, the market doesn't allow for graceful repositioning of a portfolio. So we stayed true to the strategy that has served us well over decades. Our level of actual impairments over a long period of time has been remarkably low. In 2008 and 2009, when the Moody's default percentage reached 2% to 2.5%, our default rate never reached 1%. And in the COVID-charged turmoil of 2020, when the Moody's default rate hit 1%, our portfolio default rate was around 10 basis points. And given the credit quality of our portfolio, the fact that we hold the vast majority of fixed income investments to maturity, decreases in market value due to rising interest rates, as the market is experiencing now, have little to no impact on how we run the business or how we view the strength of our capital position. In terms of our investments in alternative asset classes, we don't reach for yield. Our private equity portfolio is well diversified across strategies, sectors, and general partners. Our owned real estate is high quality and entirely unlevered, and we have little in the way of hedge funds and higher risk assets. Although we see potential short-term headwinds from recent declines in the equity markets, we also see near-term and potentially ongoing tailwinds from higher interest rates that will benefit our returns going forward. You'll hear from Dan shortly about how the recent rise in interest rates positively impacts our outlook for fixed income NII. Like everything we do, it all starts with our talents. We have a world-class investment team that is responsible for executing on our investment philosophy. Those with decision-making authority have worked with us and with each other for an average of around 20 years. That reinforces the long-term perspective we bring to our investment portfolio. I'm always grateful for their excellent work, but particularly at times like this, I'm reminded of the wisdom of our approach. It has contributed to a long history of industry-leading returns and industry-low volatility. To sum things up, building on our excellent results in the first half of the year, we're confident about our outlook. Benefiting from years of strategic investments as part of our Perform and Transform call to action, guided by our decades of experience successfully executing in a variety of macroeconomic conditions, and supported by an outlook for improving fixed income returns, we remain well positioned to deliver industry-leading returns and shareholder value over time. With that, I'm pleased to turn the call over to Dan.