Thank you for standing by. Welcome to the Travelers First Quarter 2021 Results Conference Call. At this time all participants are in a listen-only mode. Please be advised that today's conference is being recorded Tuesday, April 20 2021. Thank you. I'd now like to hand the conference over to Abby Goldstein, Senior Vice President of Investor Relations. Ms. Goldstein, please go ahead.

Thank you. Good morning, and welcome to Travelers discussion of our first quarter 2021 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 Frey, Chief Financial Officer; and our three segment Presidents, Greg Toczydlowski of Business Insurance; Tom Kunkel of Bond & Specialty Insurance; and Michael Klein of Personal Insurance. They will discuss the financial results of our business and the current market environment. They will refer to the webcast presentation as they go through prepared remarks and then we will take questions. Before I turn the call over to Alan, I 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 the forward-looking statements in our earnings press release and in our most recent 10-Q and 10-K filed with the SEC. We do not undertake any obligation to update forward-looking statements. Also, in our remarks or responses to questions, we may mention some non-GAAP financial measures. Reconciliations are included in our recent earnings press release, financial supplements and other materials available in the Investors section on our website. And now, I would like to turn the call over to Alan Schnitzer.

Thank you, Abby. Good morning, everyone, and thank you for joining us today. We are very pleased to report, first quarter core income $699 million or $2.73 per diluted share, both up from the prior year quarter. Despite our highest ever level of first quarter catastrophe losses. A higher level of core income for the quarter was driven by very strong underlying underwriting income, as well as higher levels of favorable prior year reserve development and net investment income. All of which more than offset the record level of catastrophe losses. Underlying underwriting income of $735 million pre-tax was nearly 25% higher than in the prior year quarter, driven by an increase in net earned premiums to $7.4 billion and an underlying combined ratio which improved almost two points to an excellent at 89.5%. We are particularly pleased with the strong underlying fundamentals in all three of our business segments. In Business Insurance, the underlying combined ratio improved by more than three points, which again included the benefit of earned pricing that exceeded loss cost trend. On Specialty Insurance and Personal Insurance, both benefited from higher earned premiums and continued strong margins. Turning to investments, our high quality investment portfolio continued to perform well, generating net investment income of $590 million after-tax for the quarter, up 14% from the prior year quarter. These results together with our strong balance sheet enabled us to grow adjusted book value per share by 9% over the past year, after making important investments in our business and returning excess capital to shareholders. During the quarter we returned $613 million of excess capital to shareholders, including $397 million of share repurchases. In recognition of our strong financial position and confidence in our business. I'm pleased to share that our Board of Directors declared a 4% increase in our quarterly cash dividend to $0.88 per share, marking our 17th consecutive year of dividend increases, with the compound annual growth rate of 9% over that period. Our Board also authorized an additional $5 billion of share repurchases. Turning to production, we remain pleased with the execution of our marketplace strategies. During the quarter we grew net written premiums by 2% to $7.5 billion. Our premium growth once again reflects strong renewal premium change and retention in each of our three segments. In Business Insurance, renewal premium change increased to 9.2%. It's highest level since 2013 and four points higher than the prior year quarter. While retention remains strong. Workers compensation, pure renewal rate change was slightly negative, but continued on an improving trend. Workers comp renewal premium change, which includes exposure was positive for the first time in a number of quarters. Both renewal rate change, annual premium change in every other product line, were near or above recent record highs. Net written premiums in Business Insurance were down a little bit year-over-year, driven overwhelmingly by the workers comp product line, primarily reflecting the impact of the pandemic on payrolls. As we're comparing a pandemic impacted quarter in the current year, to a largely pre-pandemic quarter in the prior year. Bond & Specialty Insurance net written premiums increased by 9%. Driven by renewal premium change of nearly 11% in our management liability business, while retention remained strong. Across our commercial businesses, the pricing environment continues to be rational and favorable, with written pricing well above estimated loss cost trends. Overall pricing levels continue to be near record levels and while margins have improved, given the continued headwinds impacting returns for the industry. We expect pricing to continue to outpace loss trend for some time. Turning to Personal Insurance, production was excellent in the quarter. Net written premiums increased by nearly 7%, driven by renewal premium change of almost 8% in our homeowners business, strong retention in new business in both auto and home. New business for both auto and home combined was up 17% compared to the prior year quarter, which is the ninth consecutive quarter of double digit growth in new business, demonstrating the ongoing success of our product, distribution and customer initiatives. Before I turn the call over to Dan, given the elevated frequency and severity of catastrophes in recent years, including the recent severe winter weather, I'd like to take a minute and highlight the work we've done in terms of the strategic management of our catastrophe exposure. Several years ago when consistent with our approach generally of recognizing, assessing and addressing trends rapidly, we took decisive action in anticipation of continued weather volatility. Our efforts started with talent. We got experts in data science, meteorology, geophysics, and environmental engineering, among others, for our Cat Management organization. We also established dedicated teams for each catastrophe peril, with the goal of developing industry-leading scientific and underwriting expertise. We have incorporated the results into our product development, risk selection, pricing, capital allocation and claim response. The insights we have developed have enabled us to supplement standard vendor cat models with our own sophisticated peril-by-peril view. This gives us a refined granular view of cat risk, incorporating proprietary variables such as complex route characteristics, tree and brush density, and location intelligence down to the parcel level. These variables are incorporated into our product development enhancing segmentation. They’re also integrated into proprietary algorithms that we use at the point of sale to inform risk selection and decisions about terms and conditions. Those of our claim response, our data scientists and other experts have developed geospatial tools, artificial intelligence and analytic models to facilitate a more effective tailored deployment claim resources. This has resulted in a more satisfying experience for our customers and a more efficient outcome for us. Taken together these efforts have enabled us to more effectively manage our exposure to catastrophes. While there's always the potential for us to have outsized exposure to an event. Over the past five years, our share of property catastrophe losses relative to total property catastrophe losses for the domestic P&C industry has declined significantly, compared to the five years prior to that. Our property cat losses over the past five years have also been meaningfully lower than our corresponding market share. Advancing our understanding of the risk and reward of catastrophe underwriting is an ongoing effort for us. As a footnote, but importantly, we've made these and other strategic investments in our business while we improved our expense ratio. So to sum up, the strength of our underwriting and investment expertise enabled us to deliver strong profitability in this quarter, notwithstanding the severe winter weather. As a result, we're off to a terrific start for the year. We're particularly pleased with the strong underlying fundamentals in all three of our business segments. Our proven strategy, strong track record of execution, leading analytics, and talent advantage give us confidence that we are well positioned to capitalize on opportunities as the economy recovers. And with that, I'm pleased to turn the call over to Dan.

Thank you, Alan. Core income for the first quarter was $699 million, up from $676 million in the prior year quarter, and core return on equity was 11.1%. Increase in core income resulted primarily from a higher level of net favorable prior year reserve development, improved underlying underwriting results and increased net investment income, largely offset by a much higher level of catastrophe losses. Our first quarter results include $835 million of pre-tax catastrophe losses, an all-time high for our first quarter catastrophe losses and an increase of $502 million compared to last year's first quarter. This quarter's catastrophes include $703 million from the February winter storms, which impacted Texas and a number of other states. Prior year reserve development, for which I'll provide more detail shortly, was net favorable $317 million pre-tax in the quarter. Our pre-tax underlying underwriting gain of $735 million was 24% higher than in the prior year quarter, reflecting higher levels of earned premium and an underlying combined ratio, which improved by 1.8 points from a year ago to 89.5%. The improvement in the underlying combined ratio resulted largely from the continued impacts of earned pricing exceeding loss cost trends in our commercial businesses and continued favorable loss conditions in personal auto. These improvements were partially offset by the comparison of more typical non-cat weather this year to relatively benign non-cat weather in last year's first quarter. After-tax net investment income increased by 14% from the prior year quarter to $590 million, as higher returns in our non-fixed income portfolio were partially offset by the impact of the expected decline in fixed income yields. Consistent with our comments on the fourth quarter earnings call and in our 10-K, we continue to expect that for the remainder of 2021 fixed income net investment income, including earnings from short term securities, will be between $420 million and $430 million per quarter after-tax. Turning to prior year reserves development, total net favorability of $317 million pre-tax in the quarter included a $72 million benefit from a subrogation settlement with Southern California Edison related to the Woolsey fire of 2018. $62 million of that benefit was recorded in personal insurance, with the remainder recorded in business insurance. Beyond that subrogation benefit, net favorable prior year development in personal insurance reflected both auto and property losses coming in better than expected for recent accident years. In Bond and Specialty, net favorable prior year development was driven by better than expected results in the surety book. In business insurance, net favorable prior year development was driven by better than expected loss experience in workers compensation, partially offset by some adverse development on losses for environmental exposures in our runoff book. Regarding Reinsurance, as discussed during our fourth quarter results call, we renewed our underlying property aggregate catastrophe excessive loss Treaty for 2021, providing aggregate coverage of $350 million part of $500 million of losses above aggregate retention of $1.9 billion. Through March 31, we have accumulated $915 million of qualifying losses toward the aggregate retention. Turning to capital management, operating cash flows for the quarter of $1.2 billion were again very strong. All our capital ratios were at or better than target levels, and we ended the quarter with holding company liquidity of approximately $1.8 billion. Our net unrealized investment gain decreased from $4.1 billion after-tax at year end to $2.8 billion after-tax at March 31, as interest rates rose during the quarter. Adjusted book value per share, which excludes unrealized investment gains and losses, was $101.21 at quarter end, up 2% from year end and up 9% from a year ago. We’ve returned $613 million of capital to our shareholders this quarter, comprising share repurchases of $397 million and dividends of $216 million. Following this quarter's share repurchase activity, we have a little more than $800 million remaining under the previously authorized repurchase program. In order to provide appropriate capital management flexibility and reflecting its confidence in our business, the Board authorized an additional $5 billion for share repurchases. And as Alan also mentioned, our Board authorized an increase in the quarterly dividend to $0.88 per share. And with that, I'll turn the call over to Greg for a discussion of Business Insurance.

Thanks, Dan. Business Insurance produced $317 million of segment income for the first quarter, a 10% increase over the first quarter of 2020 driven by higher levels of underlying underwriting income, net favorable prior year reserve development in net investment income, which more than offset higher catastrophe losses. We're particularly pleased with the underlying combined ratio of 93.7%, which improved by 3.6 points, a little less than two points to that resulted from earned pricing that exceeded loss cost trends. The improvement also reflects the comparison to the net charge we took in the prior year quarter related to the pandemic. Turning to the top line, net written premiums were down 2% primarily due to lower net written premiums in the workers compensation product line as a result of the impact of the pandemic on payrolls. Net written premium benefited from strong retention, higher renewal rate change in a return to positive exposure growth, reflecting an improving trend in our customers' outlook for their businesses. Turning to domestic production, renewal rate change remained strong at 8.4%, up 2.5 points from the first quarter of last year, while retention remained high at 83%. Written pricing for some time has been exceeding loss trend and is significantly improving the margins of our book. Importantly, we believe we have a high-quality book of business and seek to maintain high retention. With that in mind, we continue to execute deliberately and granularly on an account-by-account and class-by-class basis; we remain exceptionally pleased with our execution. As for the individual businesses, in Select, renewal rate change increased to 4.5%, up almost three points from the first quarter of 2020. Retention of 78% reflects deliberate execution as we pursue improved returns in certain segments of this business. As I mentioned above, we're pleased with the segmented execution underneath the aggregate result. New business of $95 million was down $24 million from the prior year quarter, driven by our focus on improving profitability as we remain disciplined around risk selection, underwriting and pricing. Importantly, we have not slowed down our commitment to invest in product development and ease of doing business, which position us well for long-term profitable growth in this business. As an example, in previous quarters, we've highlighted our completely redesigned BOP 2.0 small commercial product, which includes industry-leading segmentation and a fast, easy quoting experience. During the last three months, we rolled out the new product in an additional seven states, bringing the cumulative total to 30 states, representing approximately 60% of our commercial new business premium. We're encouraged with our agents' adoption of the new product as both flow and new business premium have improved meaningfully compared to the legacy BOP product. In middle market, renewal retention was strong at 9.1%, up almost three points from the first quarter of 2020, while retention remained high at 86%. Additionally, we achieved positive rate on more than 80% of our accounts this quarter, a 10-point increase from the first quarter of last year. New business was down $12 million, driven by certain business units and geographies where returns are not meeting our thresholds. To sum up, we're pleased with our execution and further improving the underlying margins in the book; we continue to invest in the business for long-term profitable growth. With that, I'll turn the call over to Tom.

Thanks, Greg. Bond & Specialty posted strong returns and solid growth in the quarter, despite the ongoing headwinds of COVID-19. Segment income was $137 million, an increase of 12% from the prior year quarter, driven by an improved underlying underwriting margin and higher business volumes. Elevated catastrophe losses related to the Texas weather event were largely offset by favorable prior year reserved development. The underlying combined ratio of 84.2% improved by 0.5 due to an improved expense ratio, primarily reflecting higher earned premiums. Earned pricing that exceeded loss cost trends was largely offset by the impact of COVID-19 and other loss activity. Turning to the top line, net written premiums grew 9% in the quarter, primarily reflecting strong management liability production. Decreased demand for new construction surety bonds due to the economic impacts of COVID-19 were largely offset by strong commercial surety production. In our management liability business, we are pleased that the renewal premium change remained near historic highs of nearly 11% while retention was a strong 87%. Management liability new business for the quarter decreased $8 million, primarily reflecting our disciplined underwriting in this elevated risk environment. Consistent with recent quarters, submissions were up, while quote activity was down. These production results demonstrate the successful execution of our strategies to maintain underwriting discipline and pursue rate where needed while maintaining strong retention levels in our high-quality portfolio. So, Bond & Specialty results were again strong, despite the challenges in the current environment. And now I'll turn it over to Michael, to discuss Personal Insurance.

Thank you, Tom. And good morning, everyone. Personal Insurance began in 2021 with strong profitability and growth. Segment income was $314 million and net written premiums grew 7%. The combined ratio of 90.3% rose about two points from the prior year quarter, primarily due to higher levels of catastrophe losses, partially offset by higher net favorable prior year reserve development. On an underlying basis, the combined ratio was a strong 85.4%. Before I turn to product line results, let me remind you that we have updated the presentation of certain financial and statistical data, for our automobile and homeowners and other product lines, to include the results of direct-to-consumer and International. This new presentation provides a more comprehensive view of product line results. Automobile delivered another very strong quarter, with a combined ratio of 81.8%, an improvement of more than nine points compared to the first quarter of 2020. The improvement comprises five points of higher net prior year reserved development and an underlying combined ratio that is four points better than the prior year quarter. These results reflect the ongoing effects of the pandemic, namely lower claim frequency due to fewer miles driven. That said, we have begun to see miles driven moving back toward pre-pandemic levels as restrictions have eased and economic activity is picking up. We're actively monitoring current trends and incorporating them into our state-specific pricing decisions, as we continue to balance business volumes and profitability. In homeowners and other, the first quarter combined ratio of 99.4% increased by 15 points relative to the prior year quarter. Driven by catastrophe losses of 22 points up over 11 points, with most coming from the February winter storm and freeze events and an eight point increase in the underlying combined ratio, primarily due to a comparison to unusually mild winter weather in the prior year quarter. Along with about two points of elevated fire losses, many of which relate to extreme winter weather, often resulting from the use of alternative heating sources. The increases were partially offset by five points of higher net favorable prior reserve development, which included the subrogation benefits of the Woolsey wildfire that Dan mentioned. Turning to domestic production, automobile net written premiums grew 3% with 14% growth in new business, while retention remained strong at 84%. Renewal premium change was about flat consistent with our plan to align pricing with our loss experience in auto. We are very pleased with our ongoing balanced execution in this line, which has resulted in 4% year-over-year policies in force growth at attractive returns. Homeowners and other delivered another strong quarter with net written premium growth of 12%. New business was up 21% from the prior year quarter, retention remained strong at 85% and renewal premium change was 7.7%. As Alan mentioned, we have achieved double-digit new business growth across auto and home for each of the past nine quarters. Our ongoing new business success is driven by a combination of strategic investments and initiatives, including Quantum Home 2.0, IntelliDrive, and new and expanded partnerships and distribution relationships. In addition to delivering strong results for the quarter, we continue to roll out new and expanded capabilities to deliver value in the eyes of our customers. Recent examples include closing on the acquisition of InsuraMatch, our digital independent agencies that expands our capabilities to serve customers and distribution partners, improving our customer self-service capabilities with the rollout of our new MyTravelers mobile application, continuing the rollout of our digital quote proposal to further enhance our agents' digital capabilities, further expanding our new version of IntelliDrive into Canada and eight additional states, and adding digital auto discounts in nine more states for customers who leverage paperless, telematics and mobile applications. In summary, we're off to a great start to the year and are well positioned to continue to deliver profitable growth. With that, I'll turn the call back over to Abbe.

Thanks, Michael. We're ready to open up for Q&A.

Michael Phillips with Morgan Stanley, your line is open.

Thank you, and good morning everyone. My first question is about Business Insurance. As we look ahead for the rest of the year, Alan, you mentioned that pricing continues to exceed loss trends. I would like your thoughts on how we should expect renewal premium changes to progress, considering potentially better exposure growth for the year and your perspective on whether there might be a continued slowdown in pricing. How should we interpret the RPC for Business Insurance?

Good morning, Michael, thanks for the question. We stopped giving outlook on price change, but I'll make a couple of comments that hopefully are responsive. We are now several years into compounding year-over-year improvement in rate and price. The three sequential quarters prior to this one, I think in Business Insurance anyway, all made record prices. So that's pretty good progress, as consequences are improving. But having said that, the drivers of price change overall are environmental and still relevant. So, we expect that overall pricing and pure rate for that matter will continue to be at levels that result in expanding margins for a while. Whether prices in particular lines go up, down or sideways, I don't think we're going to try to predict that, but it's all pretty rational, it's all pretty relative to the rate we needed. And again, there's always a lot of focus on that headline number because that's what we provide. But we're looking hard at the granular execution underneath that takes into account all the variables of account rate adequacy. So we feel great about this pricing level; we are near all-time highs in pricing, and we expect to continue the favorable environment to continue for some time.

Okay, thanks Alan. I guess one more, if we could switch over then through the authorization. Anything to read there on that that would signify any interest or lack of interest in any kind of large scale M&A?

Dan, you take that.

Michael, it’s Dan. No signal at all; that’s simply the math I gave you by the time we did the repurchases we did in the first quarter of this year, we were down to $800 million of authorization remaining under the share repurchase. If you look at our history over the last 10 or 12 years, every time we sort of get down to this level, the Board authorizes an additional buyback; and this was just the timing to do that.

Okay, perfect. Thank you, guys.

Ryan Tunis with Autonomous Research, your line is open.

Hey, thanks. Good morning. Just following up on that one with rate, just trying to get a feel for, if we look at the eight-four rate increases, are we seeing more accounts that are closer to rate adequate and that eight-four is a product of some accounts needing a lot and some not needing much at all? If we were to look across the book of renewals, is it safe to say that you're still getting positive rate on kind of the vast majority of accounts that are renewing?

Good morning, Ryan. This is Greg. Yes, we absolutely are; the vast majority of our accounts are getting rate. As Alan said, with nine consecutive quarters with year-over-year rate change, certain pockets, of course, are becoming more rate adequate. As a reminder, we've shared with you in the past, we really empower our local underwriters to look at every single account based on its own merit, and we think they've been doing a terrific job of retaining the book and continuing to get some pricing change across the portfolio.

Got it. Again I guess, for Alan, looking for an update on your current thinking around M&A strategy there. I think in the past, you haven't done any larger deals. I think maybe simply business might have been the last one I remember, which was, I think, less than a billion. How are you thinking about scale, and how are you thinking about M&A appetite?

Yes, Ryan, I understand the question and probably the thought process behind it. There's no change in our approach to M&A and that's not to say that we're not interested. Our shareholders should expect that all the time, we are evaluating transaction opportunities and thinking about them. And we often say some of the best deals we've done are the deals we didn't do. But that's not to say that we're not often looking and thinking strategically about what's out there. And so we have a view on all the things out there and all the markets we're in that might be attractive to us, and under what terms and conditions we'd want to do them. And I would have given you the same answer a year ago, or five years ago, frankly, and as we've said many times, the lens we would use for whether we would do a deal or not are: does it improve our long-term return profile, does it reduce volatility, and/or would it create shareholder value through some other important strategic benefit? So I mean, of course, we do the analysis as granularly and detailed as hopefully you would expect from us. But essentially, that's the lens, and that hasn't changed.

Thank you.

David Motemaden with Evercore ISI, your line is open.

Hi, good morning. I have a question for Greg regarding Business Insurance. I'm curious if there was any COVID-related benefit reflected in the underlying loss ratio that we should be aware of.

Hey, David, it's Dan Frey, I'll take that. COVID did impact this quarter in that we've been living with it for about a year now. Last year as it emerged, it was pretty apparent what we thought the impact was of COVID because you were looking at an immediately pre-COVID environment versus something new; it doesn't feel that way anymore. It's sort of woven into the fabric of the economy and overall results. That's one of the reasons that even going back to last year, we chose to leave everything related to COVID in our underlying combined ratio. When it's really not feasible to be able to specifically spike out what do we think the impact of COVID was in the quarter. Having said that, qualitatively, we have some idea. You heard Michael talk about the impact of COVID on miles driven in BI; it didn't get a mention in Business Insurance because we think it was pretty modest. There was, again, some level of direct charges related to COVID specific losses and things like workers comp, but very modest. And we'd say probably largely offset, if not slightly more than offset by related benefits and non-COVID frequency.

Got it, great. That's helpful. I would like to follow up on that. It's encouraging to see the margin expansion; we experienced about two points of improvement in the underlying loss ratio in BI, which I calculate increased by around 150 basis points in the fourth quarter. It seems to me that this improvement could continue at an accelerating pace. However, considering the renewal rate changes you've achieved over the past five to six quarters, I expected to see more than a two-point improvement this quarter. Could you help clarify some of the factors at play as we look ahead to margin improvement?

Sure, David. It's Dan again. I think the numbers that we see coming through business insurance for rate versus trend align with what we've seen from written results over the last several quarters if you just factor in what's earning its way through. So we did see a steadily increasing level of rate increase over last year, and we are seeing a steadily increasing level of improvement in terms of the earned impact of rate versus trend. It moves slowly, and it moves within sort of tenths of a point, changes at a time. Because the other thing I'd say to keep in mind is, it's not just the simple math of if we got eight points a rate versus five points a trend, that's three points of margin expansion; it's not. It's rate versus trend. That's a three percentage point difference. But if you translate it into loss ratio points, when you consider, say, theoretically, as 60 is loss ratio, that translates into a little less than two points of margin expansion. So being close to two points of margin expansion and expecting that number to increase maybe very slightly from here as the higher rates aren't through is right where we thought we'd be.

Great, thank you.

Josh Shanker with Bank of America, your line is open.

Yes, good morning, everyone. A few out of left field questions that I hope I can get some information on. As you restated the personal line segment and I guess folded the direct to consumer business into homeowners and personal auto segments. What does that say about Travelers interest in the direct to consumer as a channel going forward should we expect that Travelers will be a player in that market, or it's not really important to your P&L in the long run, and makes more sense just to fold it in?

Sure, Josh, it’s Michael. I would say very specifically, the restatement of the financial doesn't say anything about our commitment to direct to consumer, one way or the other; it's still an important capability for us, still a segment of the business we're investing in. Frankly, it got to the point where, and you can see it in the restatement that we gave you, it was north of $400 million worth of revenue as of the end of last year. And it was a big enough portion of the business frankly that leaving it to the side of the line breakout on the P&L didn't make sense. Not that it moved the needle on those numbers that much, but it was an important part of the business that we thought it should be fully included in the P&L statistics and then in the domestic production statistics, so that when we do make investments say in for example, marketing and advertising that drive growth in direct to consumer, we want that to show up in the production results that you see. So I would say it doesn't indicate a change in our emphasis. And if anything, I would say it reinforces the importance of that business to us both as a business segment and as an essentially a place to continue to build and test and learn and build capability.

And similarly, how should I think about simply business going forward sort of two parts; one, how big is it, how big does the Travelers think it's going to be over the next few years and two, nothing that we need numbers. But when you are taking a quote in from a direct-to-consumer manner in business, is the loss ratio materially different then is from your agency-directed book?

Just as a reminder there, we're the intermediary in that business; we're not the market behind it. So we wouldn't comment on the profitability of that. And I would say about simply business, it continues to be a medium term initiative that we feel urgent about; we're not going to break it up more than that. But we are investing in it, it is a very important capability for us. So far, the small commercial market hasn't really adopted a direct approach to buying the product other than at the very micro end. But we're not betting that's going to stay the same. And we're investing in capabilities to make sure that we're prepared to address that market as it matures. Greg, anything?

Just to give you a little more color on geographies. But the thrust of revenue is still in the UK, but we've invested in infrastructure in the United States to capture some of that value that that Alan just articulated, but that we believe is going to take some time.

Well thank you. Thank you for the answers.

Elyse Greenspan with Wells Fargo, your line is open.

Hi, thanks. Good morning. My first question is on, going back to the Business Insurance discussion. So it sounds like you guys are kind of looking for a stable rate, I guess across your businesses hoping to kind of confirm, I guess that would be the case kind of stable through the balance of this year, just based off with some commentary? And then would you guys expect workers comp, it sounds like that feels slightly negative. With respect that to inflect this year, or perhaps that's something that we should more be thinking about in 2022?

Elyse, looking ahead at rates, we haven't provided a specific direction but we do expect to maintain levels that contribute to margin expansion. We're aiming to avoid making forecasts. We're pleased with our pricing achievements this quarter and are optimistic about future pricing. Regarding workers comp, we've mentioned in previous quarters that we seem close to reaching a bottom and beginning to turn around, and we still hold that view. We saw improvements this quarter in terms of rates, which were slightly negative but show steady progress over recent quarters. Premium changes, including exposure, were positive for the first time in several quarters, indicating our customers' confidence, which is encouraging. Additionally, it appears that the workers comp impact from COVID, at least up to this point, is better than we anticipated, which could influence pricing moving forward. I suspect that rather than immediately turning positively, it may hover around the bottom for a while before improving. However, this is a good sign and reflects the strong profitability in that segment. We remain confident that we are reaching a bottom and moving towards an upward turn.

Okay, great. And then my second question, going fast on the M&A discussion. Alan, I think you said you guys were considered deals with the caveat of not wanting to add to the volatility of the company. As you think about transactions on are there certain business lines that are higher up on the list as you evaluate potential M&A? Can you just help us think through potential transactions from where you might want to add on to business offering?

I guess what we said, the comment was, of the three prongs to the lens as we think about reducing volatility is one of the virtues that we might look for. And I guess to your question when we think about our portfolio, we think about our capabilities, we think about the breadth and depth of our business, we feel great. There's nothing missing from our portfolio of businesses; we can keep going exactly the way we are and compete very successfully. Having said that, there are various opportunities and some of them could be for scales, some of them could be for products, some of them could be geographic; I mean, there's all sorts of things that in one circumstance or another might contribute to an attractive acquisition opportunity for us. So it's hard for me to say, gee, this is what we're looking for, that's what we're looking for. Again, no gaps in capabilities, but potentially some opportunities.

Okay, thanks for the color.

Mike Zaremski with Credit Suisse. Your line is open.

Craig, good morning. Maybe sticking with a Business Insurance. You gave us some nuggets about kind of recent loss trend, I think you said, there might have been a slight benefit. Workers comp trending a little better than expected. And I know you guys for longer tail lines you probably don't want to take a lot of good news in the near term. But maybe you can kind of give us a sense, other commercial long tail lines are you seeing frequency benefit or severity benefit in terms of the kind of the courts kind of gotten back to normal or maybe even more than normal in the digital age, zoom age? So kind of curious if you could give us some kind of color on the near term loss trends you've been seeing in commercial long tail lines?

Sure, Mike, it's Dan. So I'll take that maybe in a couple of parts. On the quote question in sort of that activity, let’s say, we see that to continue to be pretty slow. We talked about it last year, in terms of there's definitely a change in the data from the fact that quotes were courts for a long time and other settlements on uses have been less active and I think that continues. And I think we'll probably take a while to work through what could be the backlog there. So what we've done in terms of both our view of current accident year and prior accident reserve adequacy is to assume that nothing really has changed. So the data might tell you that things look a little bit favorable, we're not really going to react to that. Our assumption is that, once things do get back to normal, ultimately, what we're going to see is social inflation at the levels and the trends that we've seen it before. Loss cost trend at the elevated rate that we talked about even in the second quarter of last year, and then ultimately, these things will all settle out in reflection of those levels. So, to the degree that we talked about some favorability last year, and we had some favorability and prior year reserve development this year, a lot of that is frequency-driven where the losses themselves and simply not emerged; but from a severity perspective, we're still going to take the view that that severity pressure is not really going away. And that's one of the reasons that you see us continuing to pursue rate in Business Insurance, to the degree that we are.

That's very helpful. And my follow-up is probably for Dan, on the investment portfolio. Curious if you can update us on approximate new money yields in the fixed income portfolio versus the expiring portfolio yield. So there's going to a pickup in interest rates. I believe there's still a gap there that you guys are trying to overcome?

Yes, there is still a gap. It is just a little less than it was. Last quarter, we mentioned that gap being around 150 basis points; now, it might be closer to 90 or 100 basis points, but it remains negative. Also, the portfolio turns over slowly enough that even when we considered the current environment, it didn’t change significantly. We provided a $10 million range around our quarterly view of fixed income net investment income moving forward. So, it had a modest impact, but there is still a gap, and new money yield is still below what is maturing from the portfolio.

Thank you.

Brian Meredith with UBS. Your line is open.

Yes, thank you. A couple of just quick ones here. First, I'm just curious, could you comment on workers compensation insurance. As we start to see payrolls increasing here, should that have a positive benefit on margins?

Hey, Brian, good morning. This is Greg. The short answer on that is, yes. And we saw that this quarter, as Alan said, on an RPC basis, workers comp was up. And obviously we don't project where exposure is going to go long-term. But we have shared with you that we are a broad solution of the economy. So as the economy hopefully corrects and improves, we'll see positive and payroll, mostly from new employees in shares. And certainly we'll see some of that on the GL side, with sales receipts increase and also.

Right. Which in favorably impacts margins, not just top-line.

Yes, Brian. There are two aspects of exposure affecting comp. One aspect is the addition of more workers, which doesn't necessarily lead to an expected margin benefit. Historically, when wages increase and we charge more premium for essentially the same risk, part of that exposure can act like a rate increase. So, it's a combination of both factors; adding workers to the payroll introduces additional risk, and higher wages translate to higher exposure as well.

And obviously, as volumes go up, regardless of which of those it comes from, you get some expense leverage.

Makes sense. And then can I just focus a little bit on the premium in Business Insurance. Workers comp, I understand also saw CMP continue to be down. Is that just purely related to what's going on from the economic activity? Or are there other things that are going on right now there where you're calling your portfolio underwriting initiatives to stuff that are potentially pressuring that top line? And perhaps are there any kind of programs in place to kind of recharge that growth at some point?

Yes, Brian, this is Greg. Really its two drivers in that. The first one, I mentioned in my prepared comments. We've really been trying to improve the profitability of that book and you can see that with the RPC increasing five points over the last five quarters. And so that's the primary driver. But we are still feeling the COVID impact, flow overall, and in terms of submissions from the volume from our agents is down also. But I would also say that's a secondary driver.

Yaron Kinar with Goldman Sachs. Your line is open.

Good morning, everybody. My first question is in personal lines. Can you talk about the uptick in the expense ratio, considering that premiums aren't for up quite a bit where if that maybe it would remain a bit flatter? Where are you investing?

Sure, this is Michael. Particularly the expense really is volume-related costs and commissions think that we do continue to make investments in the business and increase our investment level slightly, but really, the driver of the uptick in the expense ratio was just volume-related costs in the business. And I wouldn't pay too much attention to a one quarter change, in expenses we still feel good about the expense ratio, the efficiency in the business.

Okay. And then my second question in Bond & Specialty. I was just curious about the comment that new business declined due to discipline. I'm just trying to read that with the effect that management liability rates are near all-time highs. I would have thought that, even with discipline, you'd have more opportunities to write new business. Could you maybe talk about the dynamics there?

Sure. The new business flow is actually, when you think of some of the lines that we write, the situation we've been through economically speaking, can create more risks. So think of things like employment practices liability, think about some of the trends that have been in place for public company, D&O. So there are a number of things going on that at this point in time, it makes sense to really be prudent about the risk you're selecting. And we really actually feel quite comfortable with where our new business is coming in.

Got it. Appreciate the responses. Thank you.

Thank you.

Tracy Benguigui with Barclays. Your line is open.

Thank you. I just wanted to follow up on BI rates. Is there seasonality in your first quarter business mix, I realized that workers comp renews on one on one. So I'm just wondering if that might be impacting your wage story for this quarter versus last.

There's a little bit more workers comp in this quarter typically, but not a meaningful amount.

Okay. And then we also talk about the child victim more broadly than just the Boy Scout Association that's getting a lot of attention. In our research, we saw that 31 states introducing fact sheet of limitation reform bill, and you commented in the past on New York, but wondering how you feel about this strength in your reserve light at potentially higher reviver cases, beyond New York.

Tracy, it's Dan. I think we were very early to tackle Child Victims Act stuff. Remember, we took our charge related to New York in the first quarter of 2019. So I think, pretty far ahead of the market, we've been very cognizant of abuse, molestation, and CVA type exposures. We are, as you would imagine, staying very up to speed on developments and potential developments, not only across the state but with stories like Boy Scouts, where we're very cognizant of our exposures and what the latest news may mean for those exposures. And we continue to be quite comfortable with how those things are reflected in our reserves.

If I could just sneak in. Would you be willing to also enter into a settlement on the Boy Scouts, similar to one of your competitors?

I think we'll comment on any specific matter.

This finishes the time allotted for the Q&A session. It is now my pleasure to turn the call back over to Abbe Goldstein for closing comments.

Thank you all for joining us this morning. We really appreciate your time. And as always, if there's any follow-up, reach out to Investor Relations. And have a great day. Thank you.

This concludes the Travelers first quarter 2020 results conference call. We thank you for your participation. You may now disconnect.