Good morning ladies and gentlemen. Welcome to the third quarter results teleconference for Travelers. We ask that you hold all questions until the completion of formal remarks, at which time you will be given instructions for the question and answer session. As a reminder, this conference is being recorded on October 18, 2023. At this time, I would like to turn the conference over to Ms. Abbe Goldstein, Senior Vice President of Investor Relations. Ms. Goldstein, you may begin.

Thank you. Good morning and welcome to Travelers’ discussion of our third quarter 2023 results. We released our press release, financial statement 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, Jeff Klenk of Bond and Specialty Insurance, and Michael Klein of Personal Insurance. They will discuss the financial results of our business and the current market environment. They will refer to the webcast presentation as they go through prepared remarks, and then we will take questions. Before I turn the call over to Alan, I’d like to draw your attention to the explanatory note included at the end of the webcast presentation. Our presentation today includes forward-looking statements. The company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are described under Forward-Looking Statements in our earnings press release and in our most recent 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 supplement and other materials available in the Investors section on our website. Now I’d like to turn the call over to Alan Schnitzer.

Thank you, Abbe. Good morning everyone and thank you for joining us today. Core income of $454 million for the quarter benefited from very strong underlying underwriting results and net investment income, but was also impacted by elevated catastrophe losses and net unfavorable prior year reserve developments. Mike will provide more context on the catastrophe losses. The unfavorable prior year reserve development was driven by the results of our annual asbestos review in our run-off book. The reserves in the ongoing businesses of all three segments developed favorably. We are very pleased with the underlying fundamentals of our business. Underlying underwriting income of $868 million pre-tax was up more than 40% over the prior year quarter, driven by record net earned premiums of $9.7 billion and a consolidated underlying combined ratio which improved almost two points to an excellent 90.6%. The underlying combined ratios in our commercial segments remained excellent. Our business insurance segment once again delivered very strong results with an underlying combined ratio of 89.7%. The underlying combined ratio on our bond and specialty business was also excellent at 80.7%. Looking at the two commercial segments together, the aggregate BI/BSI underlying combined ratio was 88.3% for the quarter, among our best ever. In our personal insurance segment, the underlying combined ratio improved more than five points to 94.2% as the strong written rate from prior quarters is earning in. Our underlying results in personal insurance are improving and heading in the right direction. Turning to investments, our high-quality investment portfolio continued to perform extremely well, generating after-tax net investment income of $640 million, reflecting strong and reliable returns from our growing fixed income portfolio and solid returns from our non-fixed income portfolio. In terms of production, thanks to great execution by our colleagues in the field and the strong franchise value they have to sell, we grew net written premiums by $1.3 billion or 14% to a record $10.5 billion. In business insurance, we grew net written premiums by 16% to $5.1 billion. Renewal premium change in the segment was very strong at 12.9%, driven by renewal rate change which accelerated year-over-year and sequentially to 7.9%. Renewal rate change was higher sequentially in every line other than workers’ comp, where overall renewal premium change remains positive and appropriate given return to the line. For the segment, even with higher pricing at record levels, retention remained very strong at 87%, a reflection of a rational market. New business was strong and higher broadly across the segment. In bond and specialty insurance, we grew net written premiums to a record $1 billion, achieved 91% retention of our high-quality management liability business, and grew net written premiums in our industry-leading surety business by 13%. Given the attractive returns, we are very pleased with the strong production results in both of our commercial business segments. In personal insurance, top line growth of 14% was driven by higher pricing. Renewal premium change was 19.4% in our homeowners and others business and increased to a record high of 18.2% in our auto business. Another quarter of strong production across the board positions us well for the rest of the year and into 2024. We’ll hear more shortly from Greg, Jeff and Michael about our segment results. With the end of the year in sight and 2024 on the horizon and coming into focus, we feel very well positioned for what’s ahead and quite confident. In our business insurance segment, written margins are expanding. Pricing has been strong and the components of core goods inflation that impact our loss costs are moderating. Medical inflation in particular remains benign; nonetheless, given the duration of relevant liabilities, we continue to incorporate medical inflation in our loss costs based on the higher longer-term trends. In terms of the top line in business insurance, we’re pleased that economic output and consumption so far remain robust given our leading workers’ compensation business. We benefit in particular from the near 50-year low in unemployment and the prime age labor participation rate, which is at its highest level since 2007, and ongoing wage inflation, which contributes to premium growth and margins. As a result of strong pricing in recent years and higher fixed income NII, returns to the segment are currently attractive; nonetheless, given the uncertainty generally in terms of weather volatility, economic and social inflation, a hardening reinsurance market and the geopolitical landscape, we plan to continue pursuing strong price increases in both the property and casualty lines to achieve our over time return objectives. Turning to our industry-leading bond and specialty business, we just reached a milestone of $1 billion in net written premiums and returns are terrific. As you’ve heard, results in our personal insurance business are headed in the right direction. Earned margins are improving and additional price increases will earn in from here. We’re very pleased with our targeted marketplace execution at the same time inflationary pressures are moderating. In terms of the investment portfolio, with interest rates at their highest levels in recent memory and most indications suggesting higher for longer, we are extremely well positioned. In the last five years, we’ve grown our very high-quality investment portfolio by nearly $19 billion, or about 25% to more than $90 billion. Ninety-three percent of the portfolio is allocated to fixed income. As we look ahead to 2024, we expect our after-tax fixed income NII will be more than $2.6 billion. To ensure that our competitive advantages continue to distinguish us and fuel our performance, we will continue to invest in our ambitious and focused innovation priorities. We’re spending more than $1.5 billion this year on technology inside an excellent expense ratio and with a higher proportion allocated to strategic technology investments. We’re confident that we’re working on the right priorities, executing effectively, and that we’ll see the benefits play out in growth and attractive returns going forward. Lastly, I’ll share that we recently returned from one of the year’s largest industry conferences, where we met with many of our distribution partners. We left confident that we have the pole position with distribution in the United States and that we’re positioned to support each other’s strategic and marketplace priorities. We’re committed to being their best partner and to offering the products and services that best serve our mutual customers. To sum it up, we remain very confident in the outlook for our business. I couldn’t be more grateful to my 30,000 colleagues who show up every day committed to our culture, to our standard of excellence, and to fulfilling our mission of creating shareholder value and our purpose of taking care of the people we’re privileged to serve. With that, I’m pleased to turn the call over to Dan.

Thank you Alan. Core income for the third quarter was $454 million and the core return on equity was 6.9% as heavy cat activity impacted our results. We’re pleased to have once again generated record levels of earned premium this quarter and an excellent underlying combined ratio of 90.6%, which is a 1.9 point improvement from last year’s strong results. This combination of growth and underlying margin improvement led to a very strong underwriting gain of $684 million after tax, up $206 million or 43% from the prior year quarter. The expense ratio for the third quarter improved 10 basis points from last year’s quarter to an excellent 28% and continues to reflect the benefits of our focus on productivity and efficiency coupled with strong top line growth. Our third quarter results include $850 million of pre-tax catastrophe losses resulting from another quarter of both frequency and severity of weather across North America. Turning to prior year reserve development, we had total net unfavorable development of $154 million pre-tax. In business insurance, net unfavorable PYD of $263 million was driven by charges in our run-off business, including $284 million related to our annual asbestos review as well as increased reserves for abuse and molestation resulting from the volume of claims related to the closing of the reviver window in California. This year’s asbestos charge includes an additional increase to strengthen our carried reserve position relative to the range of outcomes. Outside of run-off in our ongoing businesses, business insurance had $132 million of net favorable PYD driven by favorability in workers’ comp that was partially offset by unfavorability in commercial auto. In bond and specialty, net favorable PYD of $72 million was driven by another quarter of better-than-expected results in both surety and management liability. Personal insurance had $37 million of net favorable PYD driven by homeowners and other. After-tax net investment income of $640 million was up 27% from the prior year quarter. Fixed maturity NII was again higher than the prior year quarter, reflecting both the benefit of higher average yields and the significant growth in our portfolio of invested assets. Returns in the non-fixed income portfolio were also above the prior year quarter. With interest rates having moved higher, we are again raising our outlook for fixed income NII, including earnings from short term securities, to approximately $615 million after tax for the fourth quarter. For 2024, we now expect more than $2.6 billion after-tax, our highest level ever, beginning with approximately $630 million in the first quarter of 2024 and growing to approximately $690 million for the fourth quarter. New money rates as of September 30 are about 180 basis points higher than what is embedded in the portfolio. Turning to capital management, operating cash flows for the quarter of more than $3 billion were an all-time record. All our capital ratios were at or better than our target levels, and we ended the quarter with holding company liquidity of approximately $1.7 billion. Interest rates increased and spreads widened during the quarter, and as a result our net unrealized investment loss increased from $4.6 billion after tax at June 30 to $6.5 billion after tax at September 30. As we’ve discussed previously, the changes in unrealized investment gains and losses generally do not impact how we manage our investment portfolio. We generally hold fixed income investments to maturity. The quality of our fixed income portfolio remains very high and changes in unrealized gains impact on our cash flows, statutory surplus or regulatory capital requirements. Adjusted book value per share, which excludes net unrealized investment gains and losses, was $115.78 at quarter end, up 2% from year end and up 3% from a year ago. We returned $333 million of capital to our shareholders this quarter, comprising share repurchases of $101 million and dividends of $232 million. We have approximately $6.1 billion of capacity remaining under the share repurchase authorization from our board of directors. Similar to my comments on last quarter’s call, the significant level of catastrophe losses we’ve experienced this year have resulted in lower year-to-date earnings than we expected, so share repurchases in the fourth quarter will likely be lower than the quarterly share repurchases made in the first half of the year. To sum things up, while our third quarter earnings were adversely impacted by elevated catastrophe losses, we’re pleased to post another quarter of double-digit premium growth and improved and very strong underlying combined ratio, and further improvement in our outlook for fixed income NII, all of which bodes well for our business results going forward. With that, I’ll turn the call over to Greg for a discussion of business insurance.

Thanks, Dan. Segment income for the third quarter was $468 million, with strong underlying underwriting and investment income, as well as favorable prior year development in our ongoing book offset by reserve charges in our run-off book mostly related to asbestos. We’re particularly pleased with our exceptional underlying combined ratio of 89.7% for the quarter, which was a 30 basis point improvement year-over-year and an all-time best third quarter result. The benefit of earned pricing was offset by normal variability in loss activity, all in netting to an excellent result. Net written premiums increased 16% to a record third quarter of $5.1 billion driven by very strong renewal premium change of 12.9%, historically high retention of 87%, and new business of $695 million. Underneath RPC, as you heard from Alan, renewal rate change accelerated sequentially from the second quarter to 7.9% with all lines other than workers’ comp being higher. We’re thrilled with these production results and our field’s continued superior execution in the marketplace, and given our high-quality book as well as several years of meaningful price increases and the improvements in terms and conditions, we’re very pleased to continue to produce historically strong retention levels. Lastly, we’re encouraged that new business was higher than the prior year quarter broadly across the segment. While the comparison of new business to the prior year quarter benefited from a relatively modest prior year result, as well as higher pricing on new business this year, we’re also pleased with the impact that our strategic investments are having on our production results. As for the individual businesses, in select renewal premium change remains strong at 10.3%, while retention of 85% was up two points from the prior year quarter. New business was up $46 million from the prior year quarter driven in large part by the continued success of our BOP 2.0 product. We’re also encouraged with the early performance of our new state-of-the-art commercial auto product, which has been rolled out in 12 states. In middle markets, renewal premium change remained very strong at 10.6%, while retention remained excellent at 89%. New business was a strong $352 million. We’re pleased with the quality of the submission flow from our distribution partners during the quarter and our responsiveness in quoting and closing accounts that aligned with our appetite. As always, we remain vigilant around risk selection, underwriting and pricing. To sum up, business insurance had another terrific quarter. We’re pleased with our execution in driving strong financial results while continuing to invest in the business for long term profitable growth. With that, I’ll turn the call over to Jeff.

Thanks Greg. Bond and specialty posted terrific top and bottom line results for the quarter. Segment income was a record $265 million, up 10% from the very strong prior year quarter. The underlying combined ratio was an outstanding 80.7%. Turning to the top line, we’re pleased to have delivered record net written premiums of over $1 billion. In domestic management liability, we again delivered record level retention of 91%, up two points from the third quarter of 2022 while continuing to achieve positive renewal premium change. This result reflects the attractive returns of our high-quality book of business. Record surety net written premiums reflect strong broad-based demand for surety bonds and higher premium for large construction projects. We’re pleased to have once again delivered terrific top and bottom line results this quarter driven by our continued underwriting and risk management diligence, excellent execution by our field organization, and the benefits from our value-added approach and market-leading competitive advantages. Now I’ll turn the call over to Michael.

Thanks, Jeff, and good morning everyone. In personal insurance, the third quarter segment loss of $193 million was significantly impacted by catastrophe losses. We experienced elevated losses from weather activity specifically related to wind and hail events. This was another active quarter for severe convective storms across the U.S. There were 19 designated PCS events specifically related to wind, hail, and tornado activity in the quarter, nearly twice the 10-year average and the highest number for a third quarter in more than a decade. On a more positive note, the underlying combined ratio of 94.2% improved 5.1 points compared to the prior year quarter, reflecting an improvement in both automobile and homeowners. Net written premiums for the quarter grew 14%, driven by high teens renewal premium change in domestic automobile and homeowners and other. In automobile, the third quarter combined ratio was 103.5%. This was 8.7 points lower than the prior year quarter, which included catastrophe losses resulting from Hurricane Ian. The underlying combined ratio of 100.6% improved 3.3 points compared to the prior year quarter, driven by the impact of earned pricing in excess of loss trend. The quarter-over-quarter improvement in our results clearly reflects the growing impact of our pricing and non-rate actions. Underlying results in auto are headed in the right direction as the benefit of earned pricing continues to accelerate and as vehicle repair and replacement trends are moderating. Looking ahead to the fourth quarter of 2023, it’s important to remember that the fourth quarter auto underlying loss ratio has historically been six to seven points above the average for the first three quarters because of winter weather and holiday driving. In homeowners and other, the third quarter combined ratio of 116.2% increased 13.9 points due to the catastrophe losses that I mentioned earlier. The underlying combined ratio of 88% improved 6.9 points primarily due to the impact of earned pricing, a benefit from the favorable re-estimation of prior quarters in the current year, and a lower expense ratio. Turning to production, our results continue to demonstrate our disciplined market execution in a challenging marketplace. Beginning with domestic, homeowners and other, renewal premium change of 19.4% was very strong. The lack of growth in policies in force reflects our continued actions to further balance rate adequacy, catastrophe risk, and regulatory risk. We expect renewal premium change in homeowners to remain consistent through year-end. Looking ahead to 2024, we expect renewal premium change to remain elevated but moderate into low double digits as our automatic increase in limits factors return to more normal levels, in line with stabilizing industry estimates of replacement costs. In domestic automobile, renewal premium change of 18.2% increased two points compared to the second quarter of 2023. Auto policies in force declined slightly, reflecting our continued efforts to manage growth while improving profitability. Going forward, we expect renewal premium change in auto to remain very strong but begin to move down from here, as more of the book reaches rate adequacy on a written basis. I’m proud of the way our team continues to respond to the dynamic environment. We are consistently evolving pricing, segmentation, underwriting, and terms and conditions while managing new business flow to ensure we deploy capacity thoughtfully in the face of market dislocation. At the same time, we’re sustaining our investments in capabilities to build our business for the future. With our leading talent, capabilities, and strong distribution relationships, we are confident in our ability to generate leading returns over time. Now I’ll turn the call back over to Abbe.

Thanks Michael, and Operator, we’re ready to start questions.

Your first question comes from the line of Greg Peters from Raymond James. Please go ahead.

Good morning everyone. My first question is about business insurance. You've reported around 14 consecutive quarters of year-over-year improvement in the underlying combined ratio. I'm curious about your long-term target for your UCR, especially considering the trend of accelerating renewal rates. Alternatively, could you help us understand how this accelerating renewal rate aligns with your inflation expectations and your initiatives regarding insurance-to-value?

A lot in that question, Greg. Good morning, it’s Alan. You’re right; I don’t think we’re going to share our targets or objectives, as it may reveal competitively sensitive information about our pricing strategies. However, I can point out that renewal premium changes are at record levels. I typically avoid discussing loss trends because relying on a single metric to represent the situation across billions in premiums suggests a precision that isn’t really there, as each line has its own dynamics. Nonetheless, there wasn’t significant change in loss activity this past quarter, so we maintain a meaningful gap between renewal premium changes and loss trends, which gives you an indication of where we stand. This is why it's clear in my prepared remarks that written margins are expanding.

Right.

Your next question comes from the line of David Motemaden from Evercore ISI. Please go ahead.

Hi, good morning. Just a follow-up question on the BI underlying loss ratio. Greg, you had said that the benefit of earned pricing was offset by normal variability in loss activity. I was wondering if you could just size those components, and it sounded like non-cat weather was maybe a little bit elevated relative to normal expectations, but wondering if you could just break that down for us.

Hey David, it’s Dan. I think we’re not going to go any further. I think what Greg said is really the way to think about it, which is as Alan just mentioned, we’ve been getting a good level of written price increase and that’s earning its way through, so there is still definitely a benefit from earned pricing. In any given quarter, you’ve got a handful of things that are going to go one way or the other - that could be small weather, that could be base year, it could be mix changes, it could be just variability from one quarter to the next. There were some good guys and some bad guys, nothing particularly significant in that result, just about offset the benefit from earned price, and again all inside of an underlying combined ratio that we’re really happy with at sub-90.

Your next question comes from the line of Elyse Greenspan from Wells Fargo. Please go ahead.

Hi, thanks. Good morning. I was hoping to get more color on the reserve development you guys called out in your ongoing businesses within business insurance, if you could tell us what the workers’ comp favorability, and then I think you called out commercial auto developed adversely. Could we get the numbers there, and then are there any other lines in your ongoing business that moved materially in the quarter?

Yes Elyse, it’s Dan. I’ll disappoint you there - we’re not going to do the line by line, but comp has been pretty strongly favorable. It was pretty strongly favorable again this quarter. In our remarks, we tried to call out the lines that had noteworthy movement this quarter. Commercial auto did have some noteworthy movement, it wasn’t dramatic particularly in the scope of if you think about the size of the reserves for the commercial auto book. What we saw in commercial auto this quarter is a little bit of a lengthening of the development patterns, not a terrifically new theme but every quarter, we’re looking at all the data that comes in. This gave us an indication that maybe reserves should be carried a little higher than we were, and we’re just trying to react to that in real time as quickly as possible. There was some movement in the other lines, some good guys and some bad guys, nothing particularly noteworthy, but those were the two main drivers.

You've mentioned an increase in catastrophic events in the third quarter and other quarters this year. As you consider potential adjustments to your reinsurance program for 2024, how do you believe the changes made over the past year may have contributed to the higher number of catastrophic events this year?

I don’t think that the changes we’ve made would have had much of a difference. Obviously the last few years, we’ve had that underlying cat aggregate treaty. We didn’t attach it at all in 2023, and we didn’t renew it in 2024. We get that question a couple of times - just to remind you, in 2023 when we had that underlying cat agg treaty, we placed, sorry, 2022, I’m a year into the future already! So 2022, we didn’t attach it, we didn’t renew it in 2023. Even when we had it last time in ’22, we placed about 50% of a $500 million layer, so it couldn’t have been more than $250 million of recovery and it cost us a lot to have that policy - rate online was very high for that coverage. We said at July 1 that we’d enter into a new PI-specific coastal reinsurance treaty. I think we’ll just continue to evaluate our position and what’s available to us in the marketplace from a reinsurance perspective as we look forward to 2024, but I’d say what we sort of regularly say, which is we’re really pleased with our risk selection. We think we do a great job of segmentation and pricing. We’re going to probably keep more net than many of our peers because at the end of the day, we like our underwriting.

Your next question comes from the line of Ryan Tunis from Autonomous Research. Please go ahead.

Hey, thanks. First question, just for Michael, in terms of homeowners, that clearly seems like a line that probably needs more rate, not less, just given where cat trends have been. But you mentioned in your prepared remarks that we might see some premium growth deceleration because of what you referred to as automatic increase in limits. It sounded like that might have been about half of renewal premium growth. Can you just, I guess mechanically, help us understand a little bit more what that increase in limits is tied to, and in the absence of that, what are some other means by which you can get more pricing on that line?

Sure Ryan, thanks for the question. Just unpacking it for a second, right, so inside RPC in homeowners, there’s really two primary components: there’s rate and then there’s exposure or other RPC, which primarily is the additional premium we collect due to the coverage A limit, the dwelling limit on the home going up. Over the past two years, we’ve increased coverage A amounts significantly to keep up with higher replacement cost trends that have been occurring, sort of across the industry, and given those outsized increases in coverage A amounts over the last couple of years, as we take a look at our external data and information about where replacement costs are today and where trends are, we are largely caught up with that increase, and so we don’t see a need for coverage A amounts to move dramatically north from here in the near term, so that premium that we would have been collecting because coverage As have been rising won’t be nearly as big an element of renewal premium change in ’24 as it was in ’22 and ’23. That said, to your point, clearly the homeowners line continues to need rate, it continues to need profit improvement, and we will continue to seek higher rate in homeowners even though the limit increases will be subsiding. The other thing I’d point is part of the answer in home is pricing. Another big piece of the answer is non-rate actions, and we’ve been very active in the marketplace across risk selection, peril-by-peril pricing, tighter eligibility, stricter terms and conditions to drive profit improvement in the property line as well.

Got it. Then just a follow-up on business insurance retention - you know, it’s interesting how robust that’s been. Clearly we’re seeing personal lines, retention come off as I would think you’d expect when you’re taking rate. What do you guys make of that, like why has retention been so robust, I guess despite so many rounds of rate increases?

Good morning Ryan, this is Greg. I think we start every month with retaining our high-quality book of business, so it’s been very much an intentional strategy of ours to make sure that we’re being thoughtful on our terms and conditions, our pricing, and all the changes that we’re making to continuously improve margins, but given the quality of that book, it’s not a surprise for us. It also is an indicator of just how rational the marketplace is right now and the need for improved margins across the entire industry, based on all those headwinds that Alan talked about. We’re not surprised by it, we’re very pleased with it, and we’re very focused on it.

Your next question comes from the line of Jimmy Bhullar from JP Morgan. Please go ahead.

Hi, good morning. First, just had a question on commercial auto, and if you could just give us a little bit more insight into what’s driving the adverse development there. Some of your peers have seen that as well, and I think there is some concern that this could be the beginning of a trend, given what’s gone on in personal auto over the past two years or so.

Hey Jimmy, it’s Dan again. Yes, as mentioned earlier, commercial auto has been adjusted based on the latest claims data, particularly regarding bodily injury claims. We have discussed this trend over the past few quarters. The numbers have been fairly modest, and the trends align with our expectations. However, the new data presents a different picture than our earlier estimates, leading to a slightly greater magnitude of the changes we predicted. The recent adjustments are primarily due to the ongoing slower pace of claims closing in commercial auto. As this continues to deviate from historical closure patterns, we are adjusting our approach to align with the most current data.

And that’s just a function of repairs taking longer, or something else?

This is more in the bodily injury side of commercial auto, so it’s not so much repairs themselves, although that’s been a factor in both Michael’s business and, to a smaller degree, in Greg’s business. Bodily injury, it’s more the settlement of the injury claim.

In the personal auto sector, what is your current position regarding rate adequacy based on written data? Also, considering that your discount has remained relatively stable, are your competitors responding rationally, leading to price increases overall, or are some companies not adjusting their rates in light of the rising loss trends?

Thanks, Jimmy, it’s Michael. Regarding your question, when we look at our production statistics, retention has decreased slightly, but it has remained fairly resilient despite the rates we’ve implemented, especially considering the scale of those numbers. This suggests a generally rational market, and these pressures are affecting the industry as a whole. As for written rate adequacy, last quarter I mentioned we would improve on that in the upcoming quarters. Compared to my comments last quarter, we feel a bit more optimistic now than we did 90 days ago, especially with the record level of RPC we reached in the third quarter and the stabilization of loss trends, which is reflected in our underlying combined ratio. However, written rate adequacy still relies on several factors we discussed last quarter, including the prices we receive, the pace at which loss trends stabilize, the regulatory process for rate approvals, and our actual loss experience. At this stage, it is very much a conversation that varies by state, and we are addressing each state individually and adjusting our strategies accordingly.

Your next question comes from the line of Brian Meredith from UBS Financial. Please go ahead.

Yes, thanks. A couple of questions here. First, let’s let Jeff answer some questions here. Jeff, on the management liability business, I think you had mentioned in the quarter that there was some favorable current year development. Maybe you can quantify that and what’s going on there with the management liability business that you’re seeing this favorable development.

Hey Brian, it’s Dan. I think we’re not going to put a number on it. It’s not a significant deal. The only point Jeff was trying to make was sort of when you do the comparison year-over-year, there was some favorable CYPQ, which we called out last year in the third quarter. There was some favorable CYPQ this year as well, just not as much, so the year-over-year is unfavorable given less of a good guy.

Got you, okay. That’s helpful. The next question, I’m just curious, bigger picture in business insurance, exposure growth continues to be pretty healthy. Maybe you can give us a little context around what kind of drives that exposure growth? I would think that with the economy moderating some here, that that exposure growth would start to slow here.

Yes Brian, we watch for that all the time, and as you can see in the webcast, in the blue lines we give you, you can see it’s been very stable across the select business and the middle market, and obviously those add to the total BI business. It really is a function of nominal GDP - you know, economic growth and overall inflation levels, and clearly we’ve seen the consumer-type inflation correct somewhat from the peak of mid-2022. Where we’re really encouraged, when we also look at our audit premium which is more of a going backwards view in our core middle market business, we continue to have real strong audit premium also, so both backwards and forward, we’re encouraged with how exposure is playing out in the business and we’ll continue to report out what we see with that line.

Your next question comes from the line of Michael Zaremski from BMO Capital Markets. Please go ahead.

Good morning, everyone. I wanted to start with the business insurance segment. I noticed your comments about expanding written margins. Does the term "written margins" include reserve changes? I'm trying to understand, as when we analyze the loss ratio, excluding catastrophe losses, it's clear that reserve releases or additions are not improving year-over-year, yet margins seem strong. Are you looking at written margins from a forward-looking or backward-looking perspective? Any insight would be appreciated. Thank you.

Yes Mike, it’s Dan. Just to clarify for you, so when we’re talking about margin in that context, we’re talking about the underlying combined ratio, so leaving to the side catastrophe losses and leaving to the side prior year reserve development. The only other comment I’d make in that regard is when we do see changes in prior year development, we do roll forward our thinking in terms of does that impact our view of current year loss and go-forward loss, but PYD itself as its booked, whether it’s favorable or unfavorable, is outside of that context when we’re talking about underlying margins.

Okay, understood, and just a quick follow-up. Have you changed your view of forward-looking loss after this quarter? You also mentioned the topping off of the asbestos and environmental issues. I think you referred to it as topping off, but you mentioned an additional amount, and I'm curious if you would specify what that dollar amount was. Thanks.

Yes, so I don’t think we’ll split the asbestos charge beyond that, but what we wanted to get across was we did our sort of traditional deep dive in the third quarter, that resulted in a figure for which we would have strengthened the asbestos reserve. We chose also to, if you think about it in simple terms, as moving higher in the range of possible outcomes for asbestos, and so we’ve put some money on top of what the analysis otherwise would have told you for the quarter. Then in terms of the first part of the question, we’re looking at all the factors that go into loss trend every quarter, including favorable or unfavorable PYD. There are generally small puts and takes on a pretty regular basis, nothing terribly significant in this quarter in terms of our view of loss trend.

Your next question comes from the line of Yaron Kinar from Jefferies. Please go ahead.

Thank you and good morning. I guess my first question is on workers’ compensation. We saw a premium decline there year-over-year. Are there any one-time items there or is it just an indication of market conditions and maybe rate compression? Maybe you can tie that into how you’re viewing this line of business and your thoughts about that into 2024.

Yes, good morning Yaron. I think you’re referencing the slight decline in the net written premium for the quarter. I would point you to year-to-date - it is just up 2%, so it wasn’t a meaningful change for the particular quarter, and obviously where you’re seeing not the level of net written premium growth on the other product lines that we’re seeing in workers’ comp is clearly the rate pressure that the entire industry is seeing there. That rate pressure is driven based on the bureau’s loss cost recommendations that continue to put minuses across the industry, and that’s just an indication of the health of the line. We’re the largest workers’ comp writer in the country, and on a calendar year basis we feel terrific about the results of that, and that’s basically what’s driving some of that net written premium change that you mentioned.

Yes Yaron, just to be clear, we feel great about the workers’ comp line, we feel great about our results this quarter, this year, and we feel great about the outlook.

Got it, thank you. Then my second question, also on BI, did you have any CYPQ there, because I did notice that the underlying loss ratio was flat year-over-year. Just given the rate commentary and RPC commentary, I would have thought maybe we’d see a little bit of improvement there.

Yes Yaron, it’s Dan. A little earlier in the call and in Greg’s comments, we called out that we did see some benefit from earned price, but half a dozen other things that would happen in any quarter could be some good guys, could be some bad guys, could be mix, could be base year, could be non-cat weather. There were some favorable and some unfavorable that netted to a modest unfavorable to offset the pricing benefit, but nothing significant there.

Your next question comes from the line of Paul Newsome from Piper Sandler. Please go ahead.

Good morning, thank you for the call. I wanted to ask if you could help me consider the cat load in the future. One thing I'm curious about is whether inflation is causing losses that would not have previously been classified as cat losses to now fall under that category. This might be a reason why the cat load could increase. I would appreciate any insights you have on this.

Sure Paul, it’s Dan. I'll start. Regarding your question, yes, some of the increase in catastrophic losses can be attributed to inflation over the past several years, which has raised the value of those claims. Over time, more incidents may qualify as catastrophes due to this threshold change. In terms of catastrophes, we're analyzing long-term, medium-term, and near-term weather trends, placing greater emphasis on recent trends. As Greg and Michael mentioned, we're responding with stronger pricing, adjusting terms and conditions, and selecting risks appropriately. This year has also seen a noticeable rise in catastrophe activity. For instance, in the last quarter, there were 88 days out of 91 with a PCS event, and in the third quarter, there were 92 days, with PCS events occurring on 91 of those days. The rise in catastrophes results from several factors: an increase in the frequency of storms, a greater number of people living in high-risk areas, and the impact of inflation raising overall costs.

Is there a way to determine if this will affect the underlying combined ratio regarding the catastrophic designation?

You know, Paul, sometimes we do see that in the quarter, where it’s bucketing, where things will spill over into the cat number that would have otherwise been an underlying. That was not a big factor this quarter. It’s not like there were a bunch of close calls that, because of inflation, spilled over into a cat designation. This was a significantly higher number of severe convective storms for a third quarter that created a bunch of catastrophes, so this was not a definitional bucketing close call issue. That does happen sometimes, but it didn’t happen this quarter.

Your next question comes from the line of Michael Ward from Citi. Please go ahead.

Thanks guys, good morning. I was curious about personal auto. Just wondering if there was an impact from current year reserves on the underlying result, and if you could maybe expand on the frequency and severity trends.

Sure Michael, it’s Michael. You know, in terms of CYPQ, not a significant amount. I mean, we called out the earned impact of pricing - that really is the driver of the improvement in underlying, and then as respects frequency and severity, frequency largely coming in, in line with expectations. If you look at external indices, miles driven is up 2% to 3%, it’s pretty consistent with the trend it’s been on, and so not a lot to talk about on the frequency side. Then really, the moderating trends that I described are really coming from severity as we continue to see in particular physical damage severity moderate quarter over quarter over quarter as we go through 2023.

Thanks, and then on commercial property, just wondering how should we think about the impact of the growth on PI margins, and if there’s more volatility in non-cat property, might that affect your growth appetite next year?

Mike, it’s Dan. I think we’re very aware and cognizant of the amount of property that we’re putting on the books, where we’re putting it on the books, and what that’s doing to our total exposures. We price property with a risk load, given the uncertainty and variability that can come with it. In terms of the margin from how much property you’re writing, there can be a mix change over time if you think about the relative loss ratios of the lines, and some of that’s driven by the duration of the liability in the lines. Property historically tends to run a lower underlying loss ratio than, for example, workers’ comp, so you could get a mix change over time. Tell me if that’s not responsive to your question.

The one thing I’d add to that also is when you look at our property growth, the thrust of that growth really is being driven based on rate and exposure change. Clearly, we’re being active and very selective on the new business front, but when you look at what’s driving the net written premium change, it does start with rate and exposure change.

And strong retention.

Your next question comes from the line of Meyer Shields from KBW. Please go ahead.

Great, thanks. A question to start for Jeff. We’ve seen G&A expenses rise significantly faster than written premium every quarter this year, and I was hoping you could talk to what’s going on there.

Yes, absolutely. This is Jeff - thanks Meyer. The question on expenses is we’re definitely making strategic investments to support our future success. I think broadly speaking, I’d give you two buckets: it’s employees and it’s also technology investments and tech platform, but I’d remind you, all in the context of while we’re delivering solid returns.

Yes, that’s fair. Thanks, that’s very helpful. Second question, and I’m obviously shooting a little bit in the dark, but it looks like last year and this year, the run rate of workers’ compensation reserve releases was a lot higher than preceding years. I was hoping you could talk through what that change is - is it just COVID-related frequency benefit, or are there other factors?

Hey Meyer, it's Dan. Comp has consistently shown a favorable development trend for several years, and this has held true for 2022 and 2023 as well. We are simply responding to the situation; we’ve discussed before the importance of being cautious with assumptions about medical cost trends given how long the liability lasts. As time passes and more claims are resolved, we get a clearer picture of the actual severity compared to what we initially projected, prompting us to adjust our estimates. We are merely adhering to the data in this aspect. Our approach to reserving for workers' comp hasn't become more aggressive; it's just a reflection of the mathematical outcomes from the changes we've observed.

Your next question comes from the line of Alex Scott from Goldman Sachs. Please go ahead.

Hey, good morning. First one I have for you is on casualty, and specifically I wanted to ask you about some of the comments that have come out of the larger reinsurance companies. I mean, it sounds like they’ve gotten a bit more cautious in their stance on U.S. casualty in general, and I guess the social inflation trends and so forth. Certainly you guys sound like you saw a little bit of that in general liability in commercial lines, but I just wanted to see if you could provide perspective on how big of an issue do you really think that is for the industry at this point, and is there anything unique about your exposure that sort of insulates you, whether it’s the size of business that you tend to write and that kind of thing.

Yes, Alex, it’s Alan. We believe that commentary is well placed, and we have been focused on this issue since around 2018. We feel we recognized it very early on and have responded consistently, even during the pandemic when the data might have suggested improvements. We have consistently expressed our skepticism, believing that the situation is still present, with elevated levels and increasing inflation. Our reported combined ratios in business insurance reflect this ongoing concern, and we recognize its importance. We have raised prices partly in response, indicating that we are aware of the issue and are managing it actively.

Got it, thank you. The follow-up I had is on the auto insurance specifically. You obviously showed a good amount of improvement, which is great to see. How much of that is driven by the severity beginning to calm down, or stabilizing at least? Any color you can provide on those trends, and maybe specifically even repair and what you’re seeing there?

Sure Alex, it’s Michael. I’ll just clarify a couple of things I said earlier. It really is the acceleration of earned pricing, earning through and driving that underlying improvement. But when you think about the external trends and external costs, it definitely is also a result of those external trends moderating. We had been talking about double-digit loss cost trends particularly in the physical damage space for quarter upon quarter upon quarter. Those trends moved into the single digits this quarter, so it was really both the earned pricing and the moderating trends driving that improvement.

Your next question comes from the line of Scott Heleniak from RBC Capital Markets. Please go ahead.

Yes, good morning. Just wondering if you could comment on the recent proposed reforms in the State of California, really to keep private insurers in the state from leaving the state. Do you think that the initiatives there are appropriate? Do you think they’re enough, and does that impact your strategy there either way, in either direction? Just any overall kind of first views on some of the proposals out there.

Sure Scott, it’s Michael. I’ll share a couple of thoughts. First of all, the idea of regulatory reform in California is positive news. That said, I really don’t think there are enough details available to evaluate. You’ve got a framework that the governor has asked the commissioner to take action on, but the details underneath that framework and how it’s going to be implemented have yet to be defined, and so deciding whether it’s a net positive or not and what actions to take as a result, there just really aren’t enough details yet to evaluate that further. But we certainly are encouraged by the fact that California is considering regulatory reform, and we think it’s long overdue.

We have time for one more question. Bob Huang from Morgan Stanley, please go ahead.

Thank you. Most of my questions were answered, but maybe just one thing. You mentioned on the prepared remarks about tech investments. Can you possibly unpack that a little bit - what are the key technological aspects that you’re focusing on in terms of the investment? I’m assuming cloud is always going to be a big part of your investment, just given that it is a consumption-based expense model, but are there other IT capabilities that you would like to call out?

Bob, good morning, it’s Alan. Thank you for your question. We can definitely discuss this further with you. We've had extensive conversations on this topic over time, but generally, our investments across the organization focus on three main areas: first, enhancing our expertise in risk; second, delivering exceptional experiences to our customers, agents, brokers, and employees; and third, improving productivity and efficiency. This plays out in various ways at the enterprise level and varies by segment. At the enterprise level, we are digitizing the value chain and the customer journey, modernizing our foundation, utilizing advanced analytics and automation, speeding up our market response, and ensuring accurate risk pricing, among other initiatives. In terms of our business operations, we are focusing on partner integration, sales and service improvements, and enhancing the customer interface. It's a focused and ambitious approach that covers a wide range of areas. We've discussed this in detail and would be glad to meet with you to share more.

Okay, thank you for that. Maybe just a follow-up on worker’s comp, and apologies for belaboring the point on this, is it possible to maybe unpack a little bit in terms of how the loss ratio looked like for workers’ comp versus other parts of business insurance? I’m assuming this does not impact your loss cost trend of 5.5% to 6%, but just curious if you can give a little bit of details there.

Yes, we’re not going to break out the losses by product line, but it certainly is wrapped in the overall number that we’ve talked about historically. Thank you.

Thank you. Ms. Abbe Goldstein, I will turn the call back over to you.

Great, thanks everyone. We appreciate you joining us today for our call, and as usual, if there’s any follow-up, please feel free to reach out to Investor Relations. Have a good day.

This concludes today’s conference call. Thank you for your participation, and you may now disconnect.