Travelers Companies (The) (TRV) Q3 2026 earnings call transcript

Good morning and welcome to travelers discussion of our third quarter 2026 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 investor section Speaking today will be Alan Schnitzer chairman and CEO Dan Frye CFO and our three segment presidents Greg Tislausky of business insurance Jeff Clank 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 your 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 it's 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-gap 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're pleased to report excellent third-quarter results. It was another and a run of successful quarters with very strong Underwriting performance across all three segments and a record result from our investment portfolio We also continue to make steady progress on important strategic initiatives that will continue to set us apart for the quarter We are in core income of one point nine five billion dollars or nine dollars and eighteen cents per diluted share Generating core return on equity of 22.1 percent over the trailing four quarters We generated core return on equity of 12.1 percent Underwriting income of 1.4 billion dollars pre-tax was driven by strong levels of underlying underwriting income and net favorable prayer year reserved developer Profitability was excellent on both a reported and underlying basis the combined ratio improved to 86.8 percent and The underlying combined ratio remained very strong at 84.1 percent with all three segments posting strong contributions Turning to investments our high quality investment portfolio continued its trajectory of delivering higher levels of net investment income after tax net investment income increased by 7% to $908 million benefiting from strong and reliable returns mark growing fixed income portfolio and a strong result from our non fixed income portfolio Our underwriting and investment results together with our strong balance sheet enabled us to return 1.8 billion dollars of excess capital to shareholders during the quarter Including 1.5 billion dollars of share repurchases just since the beginning of 2025 we have returned 8 billion dollars of capital through share repurchases Retiring 12% of the shares then outstanding in the process Even after the return of capital and having made substantial investments in the business Adjusted book value per share at the end of the third quarter was 24% higher than at the beginning of 2025 and 15% higher than a year ago Turning to the top line we generated net written premiums of 11.5 billion dollars in the quarter in business insurance We grew in every line other than property Generating net written premiums of 5.9 billion dollars That's 4% higher than the prior year quarter Adjusting for the sale of our Canadian business across the board the triad of renewal premium change retention and returns reflects outstanding and deliberate execution renewal premium change in the segment was 4.1 Including renewal premium change of 5.4% in our core middle market business And 7.8% in our small commercial select business excluding the property line We know premium change in the segment was 7% Retention which as you've heard us say before is an important indicator of marketplace stability remained very strong at 86% And was higher or stable in every line New business of $699 million was up 4% over the prior year quarter to be growing 4% x Canada at such strong returns Is a terrific achievement in bond and specialty insurance.

We also delivered terrific growth and strong returns We grew net written premiums by 12% to 1.2 billion dollars in our management liability business Renewable premium change improves sequentially to 3.8% While retention remained steady at an excellent 89% New business was up 18% over the prior year quarter In our leading surety business we grew net written premiums by 21% Reflecting continued strong production across the portfolio In personal insurance we generated net written premiums of 4.4 billion dollars With solid retention in both auto and homeowners and higher new business and homeowners We'll hear more shortly from Greg Jeff and michael about our segment results Before I turn the call over to Dan. I'd like to spend a few minutes on an important focus of our innovation work Defending our customers against legal system abuse Lawsuit abuse raises costs for everyone from the businesses and families we ensure to every corner of the broader economy Liability across GL umbrella auto and CMP is a significant share of our loss costs While conditions have been generally consistent with our expectations The drivers remain active and continue to put upward pressure on liability losses Our approach is straightforward Resolve legitimate claims fairly and promptly by paying what we owe We were early to recognize the change in the litigation loss environment at the end of 2018 And that gave us a head start in investing in technology and developing innovative claims strategies We believe that gives us a meaningful early mover advantage and our innovation efforts are now giving us tools We've never had before let me share a few examples For unrepresented claimants.

We've developed a digital tool to help resolve claims promptly and fairly It's grounded in our simple philosophy of empathy education and empowerment Which we've built directly into the experience In a pilot more than 80 percent of the claimants to whom we've offered the tool have engaged with it And overall results are very encouraging when the claimant has an attorney We're using AI to sharpen our responses to their demands Starts with the file AI gives our claim professionals a faster deeper command of claim files that can run hundreds of pages It services key facts and issues and helps shapes arguments That makes our people both more effective and more efficient Consistent with our longtime practice of maintaining a tight feedback loop between claim and underwriting Which is how we were so early to recognize social inflation in the first place The technology also feeds granular loss information back to our underwriters More accurate view of loss information For us better risk selection pricing and claim strategies We pay what's fair and when we can't resolve a claim what we believe is a fair outcome We're prepared we're prepared to defend our customers in litigation We choose our matters carefully And the outcomes demonstrate that we're effective when we do Beyond the direct financial impact of our success in litigation Our approach helps set realistic expectations from the start And that's part of the value proposition and we bring to our customers These are just a few illustrations of a broader proprietary effort that leverages talent technology Behavioral science and more what we're doing now isn't about doing what we've always done a little better We've developed new and growing capabilities that led us to what simply couldn't be done before We believe our expertise capabilities and approach will help us bend the loss cost curve as we continue to invest We expect this to deliver growing value for our customers and shareholders Building on the benefits.

We've already seen from some of our initiatives wrap it up Our excellent underwriting and investment results through the first nine months of the year Reflect our unmatched competitive advantages and the strength of the value proposition We offer to our customers and distribution partners We are well positioned to close out an outstanding year That momentum the advances we are making on our innovation agenda And the best talent in the industry give us tremendous confidence heading into 2027 and beyond And with that, please to turn the call over to Dan Thank you allen in the third quarter We once again delivered excellent financial results on a consolidated basis And in each of our three segments for income for the quarter of 1.95 billion dollars marked our sixth consecutive quarter with earnings of more than one billion Dollars and brings our trailing 12-month core return on equity to 24.1 Quarter and the trailing 12 months reflect excellent underwriting results coupled with strong investment income We generated slightly higher net written premiums despite the absence of the Canadian businesses We sold at the beginning of 2026 while delivering excellent combined ratios on both a reported and underlying basis At 84.1 percent The underlying combined combined ratio marked its ninth consecutive quarter below 86 percent The combination of strong earned premiums and the excellent underlying combined ratio led to after tax underlying underwriting income of 1.4 billion dollars Continuing our run of historically strong underlying underwriting results Our year to date after tax underlying underwriting income of 3.9 billion dollars is virtually identical to last year's Level despite moderated moderating pricing and the sale of our Canadian business Demonstrating the durability of our underlying underwriting earnings power the expense ratio for the third quarter was 28.9 percent Bringing the year to date expense ratio to 29 percent Regarding the expense ratio outlook the continued strength of our consolidated underwriting performance I just described Results in variable expenses like profit sharing and contingent commissions coming in higher than planned That's a trade.

We're very willing to make And it results in an uptick for our expected full-year expense ratio Which we now expect to come in a little below 29 percent for 2026 and about the same for 2027 Catastrophe losses in the quarter were five hundred and thirty eight million dollars pre-tax Consisting mainly of tornado hail events in the central us the prior year reserve development We had total net favorable development of two hundred and thirty four million dollars pre-tax With favorability in all three segments in business insurance The annual asbestos review resulted in a charge of two hundred and ninety five million dollars Excluding asbestos business insurance had net favorable pyd of three hundred and thirty six million dollars With favorability in every line And bond and specialty net favorable pyd was 95 million dollars pre-tax With favorability and fidelity and charity as well as management liability Personal insurance had net favorable pyd of 98 million dollars pre-tax With favorability in both home and auto Turning to investment income for the first time ever after tax net investment incomes surpassed 900 million dollars for the quarter Up 7 percent from the prior year quarter maturity nii was again the driver of the increase Reflecting both that then higher invested assets and higher average yields through the first three quarters of 2026 We've grown our investment portfolio by approximately six billion dollars Even after having returned a record level of capital to investors through dividends and sharey purchases Our outlook for fixed income nii in the fourth quarter Including earnings from short-term securities Is up slightly from the outlook we provided a quarter ago Now expecting approximately eight hundred and seventy five million dollars after tax in q4 Bringing the full year 2026 total to three point three billion dollars for 2027 We expect more than three point six billion dollars with quarterly figures starting in around eight hundred and seventy five million dollars in q1 And growing to around nine hundred and sixty five million dollars in q4 New money rates on purchases during the third quarter were roughly 120 basis points above the yield embedded in the portfolio The significant increase in interest rates during the quarter resulted in an increase in our net unrealized investment loss From two billion dollars after tax at june 30th to 6.4 billion dollars after tax at september 30th This is a good time to remind you that the unrealized loss in our investment portfolio is interest rate driven not credit quality driven Remember the changes in unrealized investment gains and losses do not impact how we manage our investment portfolio We generally hold fixed income investments to maturity Quality of our fixed income portfolio remains very high And the changes in unrealized gains and losses have little or no impact on our cash flows statutory surplus or regulatory capital And of course The same rise in rates that increase the unrealized loss is a tailwind for future results As we reinvested higher yields higher continued growth in that investment income adjusted book value per share Which excludes net unrealized investment gains and losses Was $172.47 at quarter end up nine percent from year end and up 15 from a year ago Turning to capital management operating cash flows for the quarter of three point nine billion dollars were again very strong and brought the year to date operating cash Flow figure to eight billion dollars Also of note for q3 In july we issued seven hundred and fifty million dollars of five-year debt at an attractive rate of four point nine five percent As part of our ordinary capital management Maintaining a debt to capital ratio in our target range as we continue to grow the business Sticking with the theme of capital management Turned one point eight billion dollars of capital to our shareholders in the quarter the sherry purchases of one point five billion dollars And dividends of two hundred and sixty one million dollars before I wrap up Let me add one comment about the fourth quarter for your modeling purposes effective october first We increased the percentage seated to our cyber reinsurance core to share That will reduce net written premiums by about one hundred and sixty five million dollars in q4 And by about two hundred and thirty million dollars for full year 2027 Merrily in the bond and specialty segment.

We expect the impact on bottom line earnings to be de minimis in both years Recapping our results q3 was another quarter of excellent underwriting profitability on both and underlying and as reported basis And another quarter of rising net investment income These strong fundamentals delivered core return on equity of 22.1 for the quarter And 24.1 on a trailing 12 month basis And we continue to be very well positioned to deliver strong results in the future And now for a discussion of results in business insurance all over the gray Business insurance had another very strong court delivering record third quarter segment income of one point oh four billion dollars And continued solid top line growth This quarter's results reflect the continued benefit of strong underwriting results Driven by higher-earn premiums in a combined ratio that improved two points 90.9 percent We're particularly pleased with our underlying combined ratio which remains strong at 88.9 percent Beyond our execution in the marketplace We're encouraged with the contributions we're seeing from our ongoing strategic investments For example our ongoing advancement of analytical capabilities Including the utilization of sophisticated predictive models Continues to enhance our risk selection and pricing segmentation the expanded use of external data sources Such as aerial imagery in combination with our proprietary historical claim data Further equips our frontline underwriters with the insights they need to make better decisions at the point of sale Which has contributed to a stronger and well-positioned book We believe these and other strategic investments will be important contributors to our continued success and long-term profitable growth Turning to the top line our net written premium reached a third quarter record at five point nine billion dollars Domestic net written premiums grew four percent excluding the property line domestic net written premiums grew six percent Net written premiums and national property continued to decline We remain focused on writing business only where price and terms align with our view of the risk and our return objectives Turning to production across the segment We're no premium change was four point one percent Excluding the property line RPC was seven percent and positive in all lines Retention remained excellent at 86 percent a reflection of strong returns In our continued focus on retaining our high quality book of business New business was strong $699 million up four percent from the prior year We're pleased with these production results in our fields continued execution of our proven segmentation strategies Aligning price terms and conditions with environmental trends for each life As for the individual businesses In select renewal premium change was strong at seven point eight percent while retention was steady at 81 percent And new business of a hundred and thirty nine million dollars was up three percent over the prior year These results reflect the industry leading segmentation in our product offerings Including bop 2.0 and t-cap our commercial auto product as well as the digital experience we deliver to our distribution partners In middle market renewal premium change was five point four percent While retention remained exceptional at 89 percent New business of four hundred and thirty one million dollars was up 10 percent over the prior year Our continued profitable growth is supported by predictive models that guide our underwriters granular execution at every step Expecting and quoting new business through renewals Once again another terrific quarter for business insurance We're energized by both the strength of our current execution in the additional capabilities.

We continue to build Capabilities that we believe will drive our continued success through the remainder of 2026 and beyond With that, I'll turn the call over to death.

Thank you.

Greg and good morning everyone We're pleased to report that bond is specialty posted and outstanding quarter on both the top and bottom lines We generated record segment income of three hundred and nine million dollars driven by strong earned premium And a terrific combined ratio of seventy seven point three percent turning to the top line We grew net written premiums by a very strong 12 percent in the quarter to one point two billion dollars In our high quality domestic management liability business We drove retention to a very strong 89 While improving renewal premium change by nearly a point sequentially We are very pleased that we also increased new business by 18 percent from the prior year quarter These results reflect terrific execution by our outstanding field organization Leveraging our strategic investments and enhanced pricing segmentation tools and sales effectiveness capabilities Turning to our market leading surety business We posted excellent net written premium growth of 21 percent from the prior year quarter Continuing the recent trend of strong production across our high credit quality portfolio Our growth this year is primarily attributable to our portfolio of premier contractors that are well positioned to deliver on large public And private infrastructure projects that have driven construction spending As well as meaningful contributions from new account relationships as more customers choose a carrier with exceptional financial strength Market leading value-added services and an unparalleled team So bond and specialty insurance delivered terrific profitability and excellent growth in the quarter While continuing to make strategic investments To further extend our competitive advantages and with that i'll turn the call over to michael Thanks.

Jeff.

Good morning, everyone I'm very pleased to share that personal insurance delivered third quarter segment income of 706 million dollars strong underlying income and favorable prior year reserve development both contributed to this excellent bottom line result The combined ratio of 83 and a half percent was terrific a terrific result in the quarter catastrophe losses were favorable to our plan and continued to benefit From the actions that we've taken to reduce volatility across our portfolio The underlying combined ratio of 76.7 Improved by one point compared to the prior year and continues to demonstrate strong profitability in both automobile and homeowners and other Net written premiums for the segment were 4.4 billion dollars in the third quarter as pricing continued to moderate reflecting strong profitability While retention remained solid New business premium and homeowners was higher year over year as we thought fully deployed property capacity in support of our efforts to generate profitable growth Third quarter homeowners net written premiums also benefited from our decision not to renew the pi property xol treaty Which would have taken effect july first As dan mentioned last quarter it was more cost effective to obtain the coverage we sought through the lowering of the attachment point on the corporate catastrophe xol tree In auto the third quarter combined ratio of 87.1 percent reflects a strong underlying combined ratio and favorable net prior year development The underlying combined ratio was 87.3 percent a one point improvement compared to the prior year This strong result was driven by continued favorable loss experience across coverages This quarter's result included about a one and a half point benefit related to the re estimation of prior quarters in the current year Looking ahead to the fourth quarter of 2026 It's important to remember that the fourth quarter auto underlying loss ratio has historically been about five to six points above the average For the first three quarters the winter weather and holiday driving In homeowners and other the third quarter combined ratio was a very strong 80.5 And the underlying combined ratio of 68 percent was outstanding and comparable to the prior year Turning to production in auto retention was 81 While renewal premium change was slightly negative as we continue to incorporate sustained levels of profitability into our pricing We remained pleased with the high quality profile of the new business we're writing As we maintain our disciplined approach to managing base rate levels and further enhancing our sophisticated segmentation In homeowners and other retention of 85 percent remain strong While renewal premium change continued to moderate reflecting strong profitability And replacement costs that are generally aligned with insured values We were pleased that for the third consecutive quarter new business premium was higher year over year Driven by our intentional and disciplined efforts to deploy property capacity We continue to invest in strategic capabilities that will deliver sustainable profitable growth At the same time we're executing complementary marketplace actions that include expanding distribution by appointing new agents and actively pursuing book consolidation opportunities These deliberate efforts combined with our strong agent relationships portfolio solutions for customers and industry leading claim capabilities Positioned us to be the undeniable choice for consumers and an indispensable partner for our agents To sum up this was another great quarter for personal insurance on the bottom line And we continue to focus on taking a measured thoughtful approach for profitably growing our business over time Now i'll turn the call back over to abbie Thanks michael.

Thanks for the question that we would Absolutely reiterate the durability of underlying underwriting income and You know just to give you a little color behind that. I mean Putting in some historical context. We are a larger more profitable company than than we've been historically Strong competitive advantages with a strong value proposition Demonstrated success with innovation and investing You think ai gives us tremendous opportunity and and as i've been Saying i think by word for the first time in my 2022 annual letter We think scale is going to be increasingly important And so we think all of that will continue to give us the ability to Outselect and outprice And and so that gives us great confidence in the durability of the underlying underwriting income Yeah, david is dan the only thing i'd add to that is You shouldn't mean that doesn't mean it's not going to move a little bit one way or the other the other comment that allen's made Relatives of that metric is we don't know if 2027 is going to be a little higher than that a little lower than that or flat but The zip code that we're in now is just a completely different zip code than we used to be in and we don't see any reason that that's like But it changed got it.

uh, you're seeing that and um, you know, maybe just how you guys are thinking about the You know the level of ibnr that you guys have been putting up over the last few years Yeah, david, so We feel great about where the balance sheet is as we've said now for for a couple of years. Um, it was it was All lines across the board. So we saw a favorability and commercial auto commercial property Cmp general liability workers comp none of them were particularly Outsized although in aggregate a number, you know as big as we talked about on the call is is a very is a very good result so I would say We we continue to be thoughtful about the reserves that We carry on the book respectful of the long-term loss trends that should come out of the liability or or the comp lines and As things emerge somewhat favorably to what we had provided for and in our prior picks were getting pyd But yes across the board including gio Got it.

I would say it's as we've expected no no surprises at all whether we're talking about social inflation or anything else So, um, no no surprises at all in terms of the loss environment.

Sure. I'll take it Greg because to your point muse in particular, you know at least today is Mostly for focusing the personal insurance space. Certainly Greg's team and might have been collaborating and he can he can chime in as well um You know the first thing I would say just broadly about muse and AI assistance Um, is it's it's early days, right? I mean the the actual volume of observable activity is is pretty minor um And I think there are a A lot of things that could potentially impede the pace and scope of change there Uh, you know, we've got to pay attention to consumer adoption We've got to work through technology and data dynamics.

There's a variety of legal and regulatory considerations as we Uh deal with these developments and work in this space and You know just to put a put a point on it, you know, if and when you're engaging with an AI assistant Um, you got to confirm a number of things, right? First and foremost is that AI assistant actually authorized by the consumer that's doing the shopping Secondly is the consumer affirming and confirming that the information provided is accurate And third and and probably most importantly does the customer actually understand What they're buying and and those things aren't sort of particularly transparent and clear Uh, as you as you engage digitally in this space and those Considerations grow in importance with the size and the complexity Of the asset or the or the risk that that you're ensuring so Um, you know, we're engaged in exploring the opportunities and the threats here We're going to continue to test and learn and make sure that we're prepared to respond Um, and we've been building digital capabilities across the organization for a really long time, you know, on the commercial side We've got simply businesses then in personal insurance.

We've got ensure match and D to C and and I think I think we'll be prepared for for wherever this goes Yeah, Greg. I would just add to that that if you look at a continuum of risk from the Most complex to the least complex the stuff that trades digitally today and I do think it's important to remember that that you know Customers can trade digitally today But the things that actually trade digitally are way over at the simplest end It's renters. It's pet. It's, you know, that that sort of stuff you get mildly more complicated People might use the technology to shop and and do some price discovery But but very often they opt out to talk to a person And so, you know, unlike a lot of other commerce where you can imagine, you know, digital trading Being being more popular in a complicated domain like insurance it so far it hasn't been the case But but to Michael's point Going back, you know, 20 years talking about D to C We we contemplated the world would get more digital and and that's you know We we didn't invest in D to C because we thought we were going to be a leader in D to C We invested in D to C 20 years ago Because we wanted to make sure we have the capabilities of a digital company We wanted certainly we want to understand distribution But we also wanted to understand how to engage with our distribution partners how to service our customers And then more recently when when we acquired simply business and zen and sure match that was also with the thought that world was going to be more digital So You know, you can you can get a sense of of our view that we think this is going to be Sort of a measured adoption to the extent there is adoption, but wherever it goes.

We are very prepared for it.

It's Dan. So I don't know that I would Use the word conservative when we came up with our loss picks. I think what we tried to say is We're making certain that we're leaving a provision for the level of uncertainty that comes out of those long tail lines and More recent changes in development patterns and attorney reparits and and things like that Um, look we had a number of years contribute to the favorability in In pyd this year. I think if you just look at the gravity of where most of the reserves in particularly ibnr is It is naturally going to be in the most in the most recent action year So I think not a big surprise that you shouldn't read that as saying That we've changed our view in terms of whether there still needs to be consideration for and respect for uh, the potential uncertainty in those lines and the health of the ibnr that we continue to maintain but As quarter after quarter goes by and we've seen things come in a little bit better We felt it was appropriate to take some reaction here.

This is Greg. Yeah I did share with you last quarter that you know depending on what filing state by state get approved quarter to quarter You can have some variation and of course you have separate accounts that are coming up Up for renewals in each quarter. So yeah, I wouldn't say one quarter was in aberration more than the other every day We look at that business in terms of, you know What the returns are in that business and what the pricing and new business needs to be and um, and that's how we execute Hey, thank you Your next question comes from the line of katie sakis with autonomous research Katie, your line is open.

Okay, good morning. I I don't I think we're going to give out look on on the top line Other than to say We feel great about the execution and the growth we put on the books And we feel like we've got all the capabilities and and value proposition that continue to be successful executing in the market So we're we feel great about next year and we're optimistic but we're gonna we're gonna stop short of Indicating a trend or giving a number That's fair.

Yeah, josh. I I I do think that there will be an opportunity for us to do that. We we know that we are generating operating leverage and and just to Just to give you a little bit of color into that So so that there's some things that we that we know and we have a lot of confidence in so let me give you a couple of examples Our our cost per unit of software development much improved our Labor costs associated with first notice of loss down Our cost to service of policy has come down. There's there just some areas where we we know And that goes into operating leverage There are other areas where attribution is a little more difficult.

So for example, we're very confident. We're giving our underwriters better insights um And and you know you can you can look at the excellent underwriting result, but it's hard to draw a very Straight line from the the improved improved insights for giving the underwriters and exactly that outcome so It's it's a little bit harder to see that but kicking a step back if the The combination of the ways that we can deploy the operating leverage and the benefits that we can't quantify are Are embedded in the results that we have and if we decide that that we want to redeploy some of those into pricing without compromising our return objectives.

I guess that you have right now Josh is really hard to look five years out I think in any business But you know we've said for a long time that that we think there are meaningful benefits of scale including the ability to invest at the level that we're investing and you know, I think You know, the early benefits, you know come through expenses and and the loss ratio So we'll see it in margins and and over time that's going to you know translate into it to growth So I do think that that travelers will be a consolidator of premium Okay.

Thanks Yeah Mike good morning and thanks for the question. Let me let me just step back and and just make a few observations about the overall pricing environment If there's there's one word over the top to describe it. I would say it's stable I'm I'm not going to get into what rpc did by every single line, but Just for example that the sequential change in Rpc and property was small. It was very small We're we're not prepared to call a bottom. Certainly you couldn't call a bottom off one data point and who knows what's going to happen 90 days from now But we were very pleased to see a very very small change there sequential movement in rpc in the liability lines and now i'm talking about g at gl and umbrella was was also was also modest so All in all pretty orderly and you know We we talk all the time about the fact that we execute one account at a time We're we're looking at the next account and deciding whether we want it in the portfolio when at what price and You know, it's it's also just a reflection of the returns by line if if you look at by line Pricing retention and return.

It's a perfectly rational picture. It's just The execution couldn't be better.

Thanks Mike and stan i'll try that look I think one thing that's happened Especially if you want to look at the components of reserves between, you know, chase and ibnr now versus three years ago or five years ago Or ten years ago. I don't think we're ever literally ever going to go back to the levels That we saw ten years ago because Attorney repert is higher that lengthens the tail more claims come in later. So And that's really a point that that we made a few years ago in 2024 You know when we started talking about an uncertainty provision to allow for the possibility that those trends would continue Um, and so when Alan referenced earlier in his comments, you know pressure on the loss cost which somebody else asked about That just means loss costs continue to go up But they are not going up by any more than we anticipated And we anticipated in our picks so I think the component of Our ultimate loss picks is perfectly logical given the current Development patterns if in fact the actions that we're taking in our claim organization Translate into a better outcome than for sure.

There's going to be some ibnr that we ultimately don't need But we are not projecting that as we sit here today.

So But the expense ratio as as we say all the time, you know, we'll decide what we want the expense ratio to be and then and then dial into that number A big component of that is what do we think we need the expense ratio to be in order to have a competitive position in in the marketplace and So we're pretty we're pretty copacetic with where that is right now as you mentioned it and as I said keep in mind that Pretty much the largest component of the expense ratio is is commissions Which includes the contingent commission and the profit sharing and so We're in a very strong position from a margin perspective I don't expect that to reverse itself in the near term.

So About where we are is pretty good with us for right now.

Yeah, at least damn so so I think I think you're right in the first place not a very big change and nothing in particular to call out You know, it's a great number and it moved by about a half a point year over year Which could have easily moved a half a point the other way, you know a bunch of stuff in there as there always is The impact of pricing product mix There are changes in non-cat property losses. There's base year changes. There's the impact of Strategic investments we're making as Greg mentioned in his remarks again, but None of those things were particularly noteworthy as quarter.

Good morning We do have A link between our expectation for net investment income and our insurance pricing. It's it's of course part of the model Um, just a couple of things to think about though the the the portfolio turns over relatively slowly So it takes a while to earn in And as the risk-free rate goes up our hurdle returns go up So you sort of have to put all that into the blender to figure out what what the impact is Got it.

Uh, how are you going to keep If up rather than down Sure, Andrew, it's Michael. I mean, I think you know the the comments that I made Uh in my prepared remarks are really key to to what we're doing there and You know to be clear, you know, we're definitely not You know one to chase premium growth at all costs in any given short period of time, right? Our objective is to profitably grow this business over time Uh, we do that by matching price to risk Uh, and so you see that activity in the rpc numbers that you're looking at right in the in the third quarter of this year Uh, we took about 10 rate decreases in auto Again still in that same low single digit range that we've been talking about but as we monitor our performance and look at loss costs We adjust pricing though.

So that's certainly a lever that we pull We continue to make strategic investments in products and services and capabilities that Make sure that we have the products and services our customers want to buy in or agents want to sell And then we do quite a bit around distribution management and making sure that we've got the agents appointed that we need Um And that we are taking advantage of opportunities to solve problems for them when I talk about book consolidation opportunities as an example That's when we're working with an agent or a broker who's having issues with another carrier And we talked to them about bringing that business over to travelers So there are a number of things that we're doing from a from an appetite pricing and distribution management standpoint Uh both to you know defend the fort to use your words, but also to play offense to make sure that we're Leveraging the capabilities we have to profitably grow the business over the long term Very helpful Thanks Your next question comes from the line of yarn can are with me Yarn your line is open.

Good morning. You're all this is Jeff. Um You know as Consistently highlighted by the traveler's business risk index Cyber is one of the most important topics that our customers are facing It's a dynamic exposure and it has been and there's no question that the advanced AI models are adding to that dynamic I'd remind you when you think about our portfolio. It's heavily weighted toward the middle market mainstream businesses We've always been focused on limits management If you look inside our book of business is substantial majority of our limits are at a million dollars or less Those accounts that are above that are predominantly at five million or less and that's before you take into into account any reinsurance that we have in place And cyber's always been one of our most heavily re-insured lines of business And then the last thing I'd share with you is that we've we've really invested heavily in risk control capabilities including Our acquisition of Corvus a few years ago that we've shared with you We're not just assessing these accounts on the front end as we put them into the portfolio We've got ongoing risk control capabilities to help them manage the risk and so I think we are uh investing To address the exposure in partnership with our customers But in many ways You're on a to extend that was a public policy question and question about whether we need a government backstop But I don't I don't really know.

You know, we should start with the noise comment I mean, these are spectacular numbers and so there really is no noise in them there there are as always Bunch of puts and takes some things some things are favorable. Some things are going the other way But this is a spectacular number And I think You know to the analyst earlier coming on top line, you know, we're not going to give guidance on, you know, combined ratio expectations in In any of the segments, you know, other than to reiterate like the profitability of the business is really strong. We're generating All-time high levels of underlying underwriting income and we think that's got some staying power Okay, and just to be clear.

Yeah, sure I mean, I think I think you know again those couple articles really focused on Close without pay percentages across carriers Um the balance point in that first article we looked favorable that said comparing close without pay percentages across carriers is very fragile Uh the definition of claims when they're established why they're established what causes them to be paid with and without Or close with and without payment Uh vary from one insurer to the next just from a definitional standpoint, but you know you can have a claim Uh filed and have the loss be below the deductible for example as a as a reason that that um that that claim gets close without payment um and then I guess your broader question about You know seeing these cases in oklahoma and other places against other carriers for their claim handling practices You know just reinforcing Allen's comment.

I mean we have well established claim handling practices They're grounded in the philosophy to pay what we owe To deliver exceptional customer experience and do that as efficiently as and effectively as possible And I would say our claim handling and our claim organization is the best in the business. We're proud of it We hear from our agents and brokers that it's one of the reasons they are proud to represent and self-travelers So, uh, I think we've really got a strong foundation on in that in that space Matt with all with all that said let me try to answer your question We are we are very active as a company and just you know an effort to be an honest broker out there in state capitals and with insurance commissioners and with the media and and and our trade association is very active in the same places making sure that we're Educating people and and and people understand You know the the good work this industry does the billions of dollars that we do pay out the speed with which we pay it out the risk control services that we provide so We are we are very attentive to to this as a topic of interest and we are very engaged in speaking to it I appreciate that.

I'm sorry.

I think this industry is Highly responsible and and disciplined and and we use the data that we have to make that case Appreciate it.

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