Q2 2026 Quarterly Results Conference Call

ladies and gentlemen welcome to the second quarter results teleconference for travelers we ask that you hold all questions until the completion of formal remarks at which time you will be given instructions for the question and answer session as a reminder this conference is being recorded on july 17 2026. at this time i will turn the conference over to miss abby goldstein senior vice president of investor relations miss goldstein you may begin thank you good morning and welcome to travelers discussion of our second quarter 2026 results.

We released our press release, financial supplement, and webcast presentation earlier this morning. All of these materials can be found on our website at travelers.com under the Investors section. Speaking today will be Alan Schnitzer, Chairman and CEO, Dan Frey, Chief Financial Officer, and our three-segment president, Greg Teslowski of Business Insurance, Jeff Klank of Bond and Specialty Insurance, and Michael client of personal insurance they will discuss the financial results of our business and the current market environment they will refer to the webcast presentation as they go through prepared remarks and then we will take your questions before i turn the call over to alan i'd like to draw your attention to the explanatory note included at the end of the webcast presentation our presentation today includes forward-looking statements the company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are described under forward-looking statements in our earnings press release and in our most recent 10Q and 10K files with the SEC. We do not undertake any obligation to update forward-looking statements. Also, in our remarks or responses to questions, we may mention some non-GAAP financial measures. Reconciliations are included in our recent earnings press release, financial supplement, and other materials available in the Investor section on our website. And now I'd like to turn the call over to Alan Schnitzer.

Alan Schnitzer Thank you, Abby. Good morning, everyone, and thank you for joining us today. We're pleased to report an excellent second quarter and another in a sustained run of successful quarters with very strong underwriting performance across all three segments and a terrific result from our investment portfolio our results continue to reflect steady progress on the innovation front as many of the initiatives we've shared bear fruit everything from product enhancements to the impact of AI on straight through claims processing there's more of that to come as we continue to invest with discipline and focus on the initiatives that matter most for the quarter we are in core income of 2.2 billion dollars or ten dollars and four cents per diluted share generating core return on equity of 24.9 percent over the trailing four quarters we generated a core return on equity of 24.2 percent underwriting income of 1.7 billion dollars pre-tax was driven by very strong levels of underlying underwriting income and favorable prior year development reported and underlying profitability in the quarter were excellent in all three segments the combined ratio improved to eighty three point six percent and the underlying combined ratio improved to eighty four point one percent driven by a lower underlying loss ratio coming to investments our high quality investment portfolio continue to perform well after Lower tax net investment income increased by 14% to $883 million, driven by strong and reliable returns from our growing fixed income portfolio, and a strong result from the non-fixed income portfolio. Our underwriting and investment results, together with our strong balance sheet, enabled us to return more than $1.5 billion of excess capital to shareholders during the quarter, including $1.3 billion of share repurchases. even after that return of capital and having made important investments in the business adjusted book value per share was 16% higher than a year ago turning to the top line we generated net written premiums of 11.5 billion dollars in the quarter in business insurance review net written premiums to six billion dollars five percent higher than the prior year quarter adjusting for the sale of our Canadian business. We grew in every line other than property, but we continue to be very disciplined about writing national property. Property premiums were higher in both our small commercial and our middle market businesses. Renewal premium change in the segment was 4.8%, with stable renewal premium change of 6.1% in our core middle market business and sequentially higher renewal premium change of 9.4% in our small commercial select business. By product, RPC was higher or stable in every line other than property. Excluding the property line, RPC was 7.8% and about flat sequentially. Retention remains very strong at 86%, reflecting deliberate execution on our part, and a generally high level of stability in the market new business was a record 805 million dollars of eight percent over the prior year quarter as i've shared before pricing retention and returns need to be evaluated together the optimization of that combination together with new business creates shareholder value looking at them in concert these results reflect the exceptional execution of a sound strategy by our experienced field organization in bond and specialty insurance we grew net written premiums by 14 percent to a record 1.2 billion dollars in our high quality management liability business we know premium change remains steady while retention improved to an excellent 88 percent new business was up 8 percent over the prior year quarters in our leading surety business we grew net written premiums by 40 percent reflecting our success with large accounts and continued strong production across the portfolio in personal insurance we grew net written premiums we generated net written premiums of 4.3 billion dollars with solid retention of both auto and homeowners and hire new business and homeowners you'll hear more shortly from Greg Jeff and Michael about our segment results before I turn the call over to Dan I'd like to take a minute to step back from the quarter and talk about what's behind the sustained period of strong results we've delivered. In short, it's the earnings engine we've built. Four components that comprise core income. Underlying underwriting income, net investment income, catastrophe losses, and prior year development. All four have contributed to our success. We've shared before the significant increase in underlying underwriting income over the past decade. You can see that on slide 19 of webcast presentation that success is in large measure the result of investments we've made to our focused innovation strategy to strengthen and extend our broad portfolio of competitive advantages leveraging those advantages we've driven underlying underwriting income higher by growing the top line while at the same time improving underlying margins you can see the strength of the result in the contribution of underlying underwriting income to return on equity Looking ahead, we expect to continue generating strong premium levels at attractive underlying margins. With the next chapter of our investment work, Innovation 2.0, and our growing scale as added tailwinds, that's why you've heard us describe our strong level of underlying underwriting income as durable. Net investment income is also a growing and reliable contributor to our bottom line. Strong underwriting cash flows and predictable returns from our fixed income portfolio, complemented by positive returns from our alternative investments, have contributed to an investment portfolio that is now more than $100 billion. Net investment income has been a consistently strong contributor to ROE, and new money rates in the fixed income portfolio continue to outpace the embedded yield. As a reminder, about 95% of our investment portfolio is invested in fixed income, of which 99% is investment grade. Together our underlying underwriting income and net investment income have grown into a formidable earnings base, substantial enough to absorb significant catastrophe losses and still produce leading returns. In each of the last two years, we've produced among our highest levels of returns in spite of record levels of catastrophe losses and our resilience to catastrophes is about more than the size of that earning space as we've said before our share of the industry's property catastrophe losses over the past decade has been meaningfully lower than our corresponding market share a direct result of our discipline risk selection pricing and exposure management all powered by leading data and analytics those are the same capabilities that that position us to handle the prospect of continued weather volatility. That brings me to the balance sheet in prior year reserve development. We don't plan for PYD. When we set our reserves, we're deliberate about taking uncertainties into account, so we're never counting on favorable development to materialize, yet it has. We've recognized net favorable prior year reserve development in 19 of the last 20 years, totaling $15 billion pre-tax, which speaks to the discipline in our process. We're confident that our balance sheet is as strong today as ever. The earnings and cash flow this engine generates go well beyond what we can effectively put to work to run and grow the business. And that gives us valuable choices on how to deploy the excess capital. Our first priority is always to reinvest, organically or inorganically, where we can earn attractive returns. When we generate capital beyond those opportunities, we don't think of it as ours to keep. As responsible stewards, we return it to our shareholders. We've done that consistently and with discipline. We've raised our dividend every year for more than two decades, at a compound annual rate of 8%, and we've returned meaningful capital through share repurchases. Since we started our share repurchase program, we've retired 70% of the shares then outstanding. And as a result, spread our growing earnings, dividends, and book value across fewer shares, increasing each shareholder's stake in the earnings power we've built. Just by virtue of our share repurchase program, a shareholder's percentage ownership of travelers has increased 9% since the beginning of 2025. The percentage ownership of a shareholder who owned traveler's stock when we began our share repurchase program in 2006 has more than tripled. As an aside, by returning excess capital to our investors, we give them the ability to allocate their investment dollars as they see fit, including by investing in companies with different growth profiles or capital needs, thereby contributing to the efficiency of the capital markets. The efficient allocation of capital contributes to a stronger economy. To wrap it up, that's the earnings engine. tuned to continue delivering industry-leading returns at industry-low volatility. And this engine funds its own improvement. The earnings and cash flow we're generating are what allow us to invest well more than a billion and a half dollars a year, including in focused technology initiatives, such as AI, to strengthen the very advantages behind these results. It's a virtuous cycle, and one that scale only makes more powerful. Ultimately, all of this is what allows us to deliver on the promise we make to our customers, serve our 30,000 colleagues in the communities that count on us, and support the distribution partners who represent us. Operating from this position of considerable strength, we remain highly confident in the outlook for travelers. With that, I'm pleased to turn the call over to Dan.

Thank you, Alan. Travelers delivered $2.2 billion of core income in the second quarter, resulting in quarterly core ROE of 24.9% and a trailing 12-month core return on equity of 24.2%. Second quarter earnings were driven by another very strong quarter of underlying underwriting income, which at $1.3 billion after tax, marked our eighth consecutive quarter of more than a billion dollars. The investment income of $883 million after-tax and net favorable prior-year reserve development of $456 million after-tax also contributed to the strong bottom-line result. After-tax CAT losses were little more than $400 million. The all-in combined ratio of 83.6% was, again, excellent. Underwriting income reflects $10.8 billion of earned premium and an underlying combined ratio of 84.1%. Within the underlying combined ratio, the second quarter expense ratio of 29% was slightly higher than in the prior year quarter. As underwriting profitability has been stronger than expected, certain variable expenses have also been higher than expected. For example, profit sharing and contingent commissions. And that's a trade-off we're happy to make. Even with those higher profit-driven variable costs, we continue to expect the full-year expense ratio to be in line with our prior guidance of around 28.5%. Forded net favorable prior-year reserve development in all three segments in the second quarter, totaling $578 million pre-tax. In business insurance, net favorable development of $319 million was driven by workers' comp and commercial property. In bond and specialty, net favorable PYD of $75 million was driven by better-than-expected results in management liability coverages and fidelity and surety. Personal insurance recorded net favorable PYD of $184 million, with favorability in both home and auto. after tax net investment income increased 14% from the prior year quarter to $883 million. Fixed income NII was higher than in the prior year quarter and in line with our expectations, benefiting from both higher yields and a higher level of invested assets. New money yields at the end of Q2 were about 90 basis points higher than the yield embedded in the portfolio. The look for fixed income NII by quarter, including earnings from short-term securities, is consistent with the guidance we previously provided, expecting approximately $840 million in the third quarter and roughly $870 million in the fourth quarter. Fixed-income NII is expected to continue to grow beyond 2026, as the portfolio becomes larger and new money rates continue to be higher than the yield embedded in the portfolio. Net investment income from our alternative investment portfolio was also higher than in the prior year quarter. Capital management. Operating cash flows for the quarter of $1.9 billion were again very strong. And over the trailing 12 months, operating cash flows surpassed $11 billion. As interest rates decreased during the quarter, our net unrealized investment loss decreased from $2.4 billion after tax at March 31st to $2 billion after tax at June 30th. Adjusted book value per share, which excludes unrealized investment gains and losses, It was $168.20 at quarter-end, up 16% from a year ago. Adjusted book value per share also increased 6% from year-end, despite the very strong level of share repurchases in Q1 and Q2, the 14% increase in the quarterly dividend per share, and our continued investments in technology and other strategic initiatives. $1.5 billion of capital to shareholders in Q2, with dividends of $266 million, and share repurchases of $1.3 billion, leaving us with roughly $3.9 billion remaining under prior board authorizations for share repurchases. Turning to reinsurance, page 18 of the webcast presentation includes some highlights. We replaced our expiring CAT bond in May with a new CAT bond, increasing the bond size from 575 million dollars to 750 million dollars and decreasing the retention slightly second on july 1st we renewed our northeast property cat xol treaty which continues to provide 1 billion dollars of occurrence coverage above the attachment point of 2.75 billion dollars it's also worth noting that we chose not to renew the personal lines cat xol treaty we had purchased in 2024 and 2025 recall that when we renewed our general corporate cat treaty at January 1st this year we decreased the attachment point from four billion dollars to three billion dollars in the efficiency of that all perils enterprise-wide program was a more attractive way of getting the reinsurance coverage we wanted in summary our second quarter results once This again demonstrated significant and durable underwriting earnings power, steadily increasing net investment income from our growing investment portfolio, and attractive returns across our well-diversified book of business. And now for a discussion of results in business insurance, turn the call over to Greg.

Business insurance had a terrific second quarter in terms of both top and bottom line results. Segment income of $1.2 billion was a second quarter record, reflecting strong underlying underwriting income and favorable prior year reserve development. We delivered an underlying combined ratio of 88.2%, a second quarter record. The improvement in the underlying loss ratio reflects favorable loss experience, including favorable experience consistent with the kind of investments we make in areas like predictive models, risk selection, products, technology, claim, and risk control. This gives us confidence that we're investing effectively. Turning to the top line, our net written premiums reached a new quarterly record of $6 billion. Excluding the impact of the sale of our Canadian business in the first quarter, we group segment net written premiums by 5%, led by 7% growth in our middle market business and 4% growth in our select business. National property premium declined as we maintain our deliberate and disciplined underwriting standards, passing on business where price and terms don't align with our view of the risk. Turning to production across the segment, renewal premium change was 4.8%. Excluding the property line RPC was 7.8 percent and about flat sequentially. Retention remained very strong at 86 percent reflecting our continued focus on retaining our high quality book of business. New business was strong at $805 million reaching a new quarterly record. The strength of these results reflects our ongoing commitment to investing in products, underwriting precision, and the the capabilities we are building for our field organization and distribution partners. As for the individual businesses, in SELECT, renewal premium change increased sequentially to a strong 9.4% for the quarter. New business of $153 million was solid. These results underscore our continued investment in products and the industry-leading experience we delivered to our agents and brokers. BOP 2.0 remains a key contributor with industry-leading segmentation embedded in the product continuing to support profitable growth. We are encouraged by the new capabilities we are piloting within Travis, our digital platform with recently developed AI advancements that make submission uploads seamless through advanced data extraction, rapid pre-fill of submission information, and the application of sophisticated underwriting rules that generate quotes in seconds, improving the speed and ease of doing business for our distribution partners and for us. In middle market, renewal premium change remained steady at 6.1%, while retention of 89% remained at historically high levels. New business in middle market of more than $500 million reached an all-time high this quarter, up 17% from prior year levels, driven by our strong value proposition. To sum up, business insurance had a terrific second quarter in terms of both financial results and execution. We continue to grow our high-quality book while investing in differentiating capabilities that position us for long-term profitable growth. With that, I'll turn the call over to Jeff.

Thank you, Greg, and good morning, everyone. we're pleased to report that bond and specialty posted another strong quarter on both the top and bottom lines. We generated segment income of $234 million and an excellent combined ratio of 82.8%. Turning to the top line, we grew net written premiums by a terrific 14% in the quarter to a record $1.2 billion. In our high-quality domestic management liability business, Retention ticked up a point from the first quarter to 88%, while renewal premium change remained consistent. Our outstanding field team continues to achieve rate gains where appropriate through segmented and data-driven pricing initiatives. And we are very pleased with the 8% increase in new business, reflecting the value that our distribution partners and customers place on our products and services. to our market-leading surety business, we're also very pleased to have grown net-written premiums by 40% from the prior year quarter to a record level. The exceptional production this quarter spanned across our high-credit quality portfolio and included a small number of large projects and increased bonding for data center development. We are pleased that our outstanding team's efforts to build the right customer relationships and our investments to support the long-term success of our portfolio of premier contractors generated such terrific production in this profitable business. So bond and specialty insurance delivered strong profitability and excellent growth in the quarter while continuing to make strategic investments in our competitive advantages, including in our market-leading team, and important technology and artificial intelligence capabilities to improve risk selection and efficiency. And with that, I'll turn the call over to Michael.

Thanks, Jeff. Good morning, everyone. I'm pleased to share that in personal insurance, we delivered segment income of $827 million for the second quarter. Strong underlying underwriting income, modest catastrophe losses, and favorable prior year reserve development contributed to this excellent bottom line result. The combined ratio was an outstanding 79.5% in the quarter, and the underlying combined ratio of seventy seven point three percent once again demonstrated strong profitability in both automobile and homeowners and other net written premiums for the segment were four point three billion dollars as retention remained solid while pricing moderated reflecting strong profitability new business and homeowners was higher year-over-year in automobile bottom line results continue to be very strong the second quarter combined ratio was eighty of 82.8%, reflecting a four-and-a-half point benefit from favorable prior year reserve development and a strong underlying combined ratio of 85.8%. The underlying combined ratio improved just over three points compared to the prior year. This strong result was driven by favorable loss experience across coverages, including about a two-point benefit from the re-estimation of the prior quarter in the current year. These benefits were partially offset by the impact of lower-earned pricing, reflective of our strong profitability. In homeowners and others, the second quarter combined ratio was an excellent 76.7%, reflecting modest catastrophe losses and very strong underlying underwriting income. The underlying combined ratio of 70.1% was comparable to a strong prior year quarter. We're pleased that our property results continue to demonstrate the benefit of our disciplined approach to optimizing our risk-return profile through effective management of our appetite, business mix, pricing, terms, and conditions. Turning to production, we continue to make progress toward our objective of delivering profitable growth over time. In automobile, retention of 82% was considered. Renewal premium change was flat as we continue to incorporate improved profitability in our pricing. New business levels in auto remain healthy, and we continue to be pleased with the high-quality profiles of the business we're riding. In homeowners and other, retention was strong at 85%. Renewal premium change of 6.6% continued to moderate as intended, given improved profitability and our successful efforts to align insured values with replacement costs. We're pleased with the increase in both new business premium and the number of new business policies compared to the prior year, as we've broadened our targeted efforts to deploy property capacity. We continue to execute a range of initiatives designed to generate growth in both auto and property, adjusting rate levels to reflect strong profitability, enhancing product and pricing segmentation, refining eligibility restrictions, and pursuing new agent appointments and book consolidation opportunities. Porter's results underscore the strong fundamentals across both auto and home, the product of deliberate, disciplined actions over the past few years to improve profitability, manage volatility, and position our portfolio for the long term. We also continue to invest in capabilities to deliver value to our customers and distribution partners by digitizing the insurance journey, modernizing our infrastructure, and simplifying our approach. confident that our disciplined approach to performing today and investing for tomorrow will generate profitable growth over time. And with that, I'll turn the call back over to Abby.

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

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your questions, simply press star 1 again.

We ask that you please limit yourself to one question and one follow-up to allow everyone an opportunity to ask a question we'll take our first question from mike zuremsky at bmo hey good morning thanks for taking my question uh first one is just um on the competitive dynamics um in business insurance maybe specifically on the select account sandbox maybe you can kind of talk about why pricing appears to be bucking the uh downwards trend line that that the medium and larger accounts are experiencing is this you know you think more traveler specific due to do the things you're you're doing or you think it's reflective of the broader environment thanks morning mike this is greg well first there's

there's no strategic shift underneath the select but that really is a function of the rate filings that get approved on a state-by-state basis from quarter to quarter so that can just fluctuate that's really that's what's underneath that hey mike in leading to your question you said bucking the trend of of of other pricing that was going down i just want to point out that other than other than property really national property the the pricing environment was very stable that's helpful i think maybe we focus a little too much or at least i'm a little guilty of focusing a little too much on uh on property um okay just um my final follow-up is um any in terms of just

the excellent profit margins fairly pretty much across the board any prior quarter adjustments that that impacted the action loss ratio that we should be just no be considering and i could stand so if you're asking about business insurance in particular the answer is no you know happy to see half a point or so of improvement in the underlying loss ratio in business insurance you know a little bit of pricing benefits still a little bit of mix a bit of a improved view of the loss environment overall and as greg mentioned in his comments you know a bunch of the investments that we've been making they're probably starting to pay off michael did mention in pi uh in auto in particular a couple of points of favorable

prior quarter re-estimation we'll move next to gregory peters at raymond james well good morning everyone um so for the first question i'm going to step back and and just um ask about the roe um you know with the 24.2 percent are we on a trailing 12-month basis versus your mid-teens target over time um alan i'm just curious since we look across the enterprise do you think you could look consider relaxing some of your underwriting standards that price get more aggressive on pricing to grow faster considering your returns are far in excess of what your target is longer term. And I guess related to that is when do we get back to that destination of the mid-teens core ROE over time?

Good morning, Greg. Well, first of all, we're happy to be above that mid-teens core return on equity over time objective. But to your question, are we going to relax underwriting standards or pricing to try to grow? So that's a fool's errand, and we've always said that's a fool's errand. This is a very competitive marketplace, and you relax pricing. All you do is end up with same-size book of business with lower margins. So our objective is to compete on franchise value, and virtually every investment that we're making is geared towards making sure that we've got the franchise value to grow this company profitably. But competing on pricing in this business is a fool's errand.

Great. You know, it seems every quarter I ask technology questions, and I just can't help myself. In the last couple months, there have been numerous reports and commentary about the rising costs of technology implementation, you know, including things like token costs, You know, as we've been looking at it from the outside in, we thought, at least I've been thinking about technology investments as a way to improve efficiency. So I'm just curious, you know, as the cost side of technology implementation seems to be rising, do you think that's going to offset the expected efficiency gains? And related to that, there was a story that popped up about some software glitch that may have happened at your company through an implementation. I'm just curious, when you deploy technology, how you manage potential challenges as that is being rolled out. Thank you.

Yeah, so a lot in that question, Greg, but thanks for the question. We are laser-focused on the cost of technology and innovation, and we have substantial productivity and efficiency gains, you know, we talk about it in terms of operating leverage. We've generated substantial operating leverage over recent years and even longer periods. So we feel great about that. In terms of token costs and how you manage expenses of a large innovation and investment program, you've got to remember that we've been innovating as a strategy for more than a decade now. And there's a lot of hard-won know-how in doing that. And we've said we've done three things really well. We've identified the right priorities, we've executed them very well, and we've harvested the benefits. And part of harvesting the benefits is making sure that you understand your costs and that you're managing your costs. And we are laser-focused on that and very comfortable that we're doing a great job there, actually. In terms of the software glitch that you mentioned, it really wasn't a software glitch. The underlying platform is working just fine. We were moving substantial amounts of information as part of a system conversion, and that is just a highly complex undertaking. You know, as always, we regret any disruption to any customer or agent. But sometimes these things happen when you have these large, complicated programs. Many of the issues have been resolved, and we will stay at it until every single one of them is resolved.

We'll go next to Paul Newsom at Piper Sandler.

Good morning. A little bit of the same question on the ROE, but more talking about capital management. I would love to hear a little bit more full discussion of the high-class problem of the ROE and how you think that we should think about the change in capital management respectively given you should be generating quite a bit of excess capital perspective.

Well, it's Dan. So I think we've had a long-standing capital management philosophy, which Alan referred to in his prepared remarks, that served us and our shareholders really well. And that's been throughout various cycles of either under-earning relative to the mid-teens long-term objective or over-earning relative to the mid-teens ROE objective. So I think the beauty of that capital management philosophy is that you're able to apply it sort of in all in all circumstances and so said simply again we expect to generate strong levels of capital we want to be a strongly capitalized company we have consistently generated more capital than we need to run the business including to support the growth of the business we're going to look to deploy it whether that's organically or inorganically if we think we can do so and generate attractive returns and to the degree that we've accumulated more capital than we can we're going to return the rest of it through through dividends and share repurchases which you've seen from us clear here any any difference in thoughts on the m&a environment

which can be part of that capital management no um but we've we are highly attuned to m&a opportunities and confident that whenever attractive m&a opportunities come around that that we'll find a way to finance them. So our view of M&A doesn't change relative to the capital excess capital that we have.

We'll take our next question from Katie Sackis at Autonomous Research.

Good morning, thank you for the question. First, I wanted to unpack the new business momentum in domestic BI middle market a little bit more. Greg, wondering if you could just give us a better understanding of some of the drivers behind the uptick this quarter and how sustainable you think new business momentum is in the middle market going forward.

Yeah, Katie, thank you. Yeah, we're certainly proud of the number we put up in middle market. It can be lumpy from time to time given that's a transactional business, but Dan already referenced in my prepared comments, I also talked about the investments we're making that not only impact the loss experience, they impact production also by making sure we've got the best predictive analytic tools, the best risk selections, and product and technology that we're putting into the marketplace in addition to claim and risk control, those items are definitely in demand of our distribution, and I think that helps with the new business also. But, you know, given that transactional business, it can bounce around from quarter to quarter.

Yep, no, totally understand that. And then perhaps as a follow-up, sticking with middle market, You know, I completely understand the difficulties in national property and the desire to maintain underwriting discipline there. Are you guys, you know, seeing any signs of pricing terms not aligning with your view of risk in middle market property or are trends kind of hanging in higher there or stronger there, I should say?

Yeah, no, we're not really seeing a material shift in terms and conditions in the middle market property. We're so much on an account provider there, and, you know, we're also going to typically have the GL and the comp, but that's been more of a national property dynamic.

We'll take our next question from Ryan Tunis at Cantor.

Hey, thanks. First question, just for Michael, on the personal auto side, just looking for a little bit of an update on on what you're seeing in terms of frequency and severity obviously gas prices have been a little bit higher uh curious if there's any impact uh flowing through results from that sure ryan yeah this is michael i would say um you know as i mentioned uh the improvement in underlying in uh in auto was really favorable experience across coverages that's a actually a a combination of favorable frequency and severity.

As respects the question on frequency related to gas prices, I think I've said this before, it's always a little tough to diagnose what's driving frequency improvements. There tend to be a range of factors and we can point to a few things. Most importantly, improving vehicle technology and advanced safety features in vehicles, less distraction that again, we can measure, But there's not a ton of evidence, at least at this point, that there have been material changes in driving behavior related to gas prices, particularly as we look through the first part of this year.

Got it. And then a follow-up to Dan probably, but just the favorable development in business insurance. How about the – just curious with the casualty lines outside of workers' comp, commercial Auto, GL. What's kind of the bottom line on the reserve review this quarter? Thank you.

So, BI, you know, good solid number. I mentioned comp and commercial property, those were the biggest drivers. And just to give you a sense of magnitude on those, comp was a little more than $200 million. Commercial property was around $80 million. And if you think about what's left, then you think about all, you know, there's definitely ups and downs in some of the other lines of business, but the net of those things was a good guy. We have paid particular attention to the casualty lines, including umbrella and commercial lotto, and did not see any pressure there at all this quarter.

We'll move next to Mark Hughes at Truist Securities.

Yeah, thank you. You talked about the bonded specialty.

It sounds like a couple of large projects helped the premium there, and then the data center impact. how durable do you think that'll be yeah mark good morning it's it's jeff clank um we we did see some exceptional growth in the quarter across the portfolio and and you've referred to the things i called out in the prepared remarks um it's important to remember that the majority of surety production is coming from new bonds right so renewals are really limited to just a few types of obligations in commercial surety. So we've always expected there will be top-line variability. I wouldn't get into projecting the durability of those things, but if you think about the type of projects, the large projects, the data center construction, as the leader in surety in North America and our quality portfolio of high credit quality customers, we believe that we're well positioned to benefit from that future investment in infrastructure, particularly when it involves public spending but but also included in these other opportunities i've called out yeah i appreciate that then a quick follow-up on the commercial properties in business insurance the downdraft was less than it had been the last few quarters um was that

anything to do with mix in the quarter um is the work the worst behind us in terms of your top line experience in commercial property yeah good morning this is Greg again yeah I think if you're just referencing the net written premium Delta from the first quarter to the second quarter to slight improvement there there's a number of items timing variances reinsurance the trees that come up in that particular quarter but I wouldn't read into that that that's a signaling of the pricing cycle I would say that it's incrementally softer and And certainly not a reflection of that net written premium delta.

We'll take our next question from David Madden at Evercore.

Hey, thanks. Dan, in a prior question you had mentioned on business insurance, you had mentioned a little bit of an improved view of the loss environment overall. I was wondering if you could elaborate on that and maybe just talk about if you've changed the loss cost trend assumption.

David, Dan, so that reason, because we say, look, loss trend is one particular fairly narrow definition. You also consider things like changes in base year over time and how you view the loss environment. So not a big number, so I wouldn't shine a big light on it. It was just one in a series of modestly favorable items. But the reality is, like, if you just look back at the last couple of years, the margins in business insurance from an underlying perspective have been very good. So we've seen a little bit of favorability, probably relative to what we might have thought things were going to look like a year and a half or two years ago. And we're cautiously baking some of that into our picks now. Very small, David.

Got it. Now, that makes sense. And then one of One of the drivers, Greg and Dan also mentioned, you also just mentioned just on the investments that you've been making that are probably starting to have an impact within the underlying loss ratio in DI. I guess, how should we think about that flowing through going forward, or is that just a step change now that's embedded in the run rate, or is that sort of an ongoing tailwind that will keep building as an offset that we should consider to some of the pricing dynamics?

So, David, Dan, again, I'll start. You know, again, we're talking about very small numbers, right? the underlying loss ratio and business insurance change by about a half a point so these are these are not big things but but it does go into sort of our thought process of why it's important to think about more than just what's the pure rate number or what's the pure renewal premium change number there are other things that impact the loss environment including actions we take with underwriting appetite terms and conditions deductible levels claim efficiency all those things.

We'll go to our next question from Brian Meredith at UBS.

Yeah, thanks. First, I'm just curious, workers' compensation insurance, we've seen some reports out there about maybe longer recovery times happening, and perhaps that's related to just some of the fears of unemployment with respect to AI. I'm curious, are you seeing that? And maybe in that context, how does that kind of factor in your thoughts on reserving for workers' comp?

Hey, Brian, it's Dan, so I'll take at least from a reserving perspective so again you know first quarter and second quarter here again another couple of favorable quarters in terms of PYD which would tell you that we're really not seeing pressure from from a severity perspective and comp continues to be favorability both in frequency and severity and I would just go back to the comments we've made many times before which is we take a very respectful view of what the long-term severity trend in workers comp is going going to be. And even if the more recent periods have been pretty benign, our assumption in our loss picks and in our reserves is still that severity is going to go back to some higher, more normal long-term trend. So even if there were some increase in severity, whether it's because people are out longer or injuries cost more, unless it gets outside of your pick, we're not going to have a problem.

The other thing I'd say just specific to your question, we didn't really see anything specific in the most recent uh data that aligns with the problem we are alluding to but the other thing i would add brian just to sort of a general matter is that is that we we expect some some changes in frequency and severity in workers comp as a function of economic activity so that will impact the frequency at which workers go out and the length that they stay out and so we've got a view on whether uh improving or deteriorating economy is going to but to what degree it's going to contribute to those, and so we bake that into our assumptions.

Makes sense. Thanks. And the second one, I guess, from Michael. Michael, I know there's a bunch of initiatives that you're, you know, implementing to try to get growth going in personal auto insurance, but maybe, you know, I'm just curious how reasonable it is to think that growth is going to actually pick up there, given just the competitive dynamics.

It seems like every company out there is looking to grow and cutting prices. yeah brian i think i mean i think you're describing the environment and you know again you all have visibility into just like we do the rate environment and you see the uh the filings and and broadly speaking you know rate continues to be uh decreasing in in personal auto um you know i would say what what we are doing is everything that we think is appropriate to profitably grow that business um you know the things that i mentioned i would just put a little more color around like when we talk about adjusting rate levels to reflect strong profitability Alan talked earlier about lowering price in this business to grow as a fool's errand that's not what we're doing right what we're trying to do is match price to risk and so our strategy in auto is we want to match price to risk we want to have the most sophisticated segmented product we can have in the marketplace we want to have the appropriate eligibility that aligns with our appetite and then we want to make sure that we are in all the places taking advantage of all the opportunities that we can to be able to produce profitable business. And, again, as I talked about this quarter, new business levels in auto have been healthy, and we're very pleased with the profile of the business that we're writing as a result. So we're going to continue to execute our strategy. The outcome of that strategy, to your point, is going to be a little bit, you know, the function of the market, but we're going to do what we think is appropriate to profitably grow the business.

We'll move to our next question from Pablo Singsan at J.P. Morgan.

Hi, good morning. The first question I have is for Michael. As you pivot the growth in personal lines, can you talk about your approach to treating off or I guess balancing margins versus unit growth, right? And I guess to sort of simplify the question, right, at what combined ratio would you be comfortable running the book, recognizing, you know, that it's producing margins that are really good today, right? And that your book is more balanced between personal auto and homeowners compared to the broader market.

Sure, Pablo. Maybe just to put a point on the comment I made earlier, right? We have target returns. Our target return is mid-teens over time. When we talk about adjusting pricing to reflect profitability, that's what we're doing, right? We're reevaluating our loss experience state by state in the line of business, whether you're talking property or auto determining what we think an adequate price is at those target returns and then we're filing for that pricing so that's the that's the approach we take and it really is driven towards mid-teens are we over time clearly we're above the mid-teens right now and so that's why you see you know renewal premium change um you know uh moderating in both lines of business thanks for that and then second question i have for for dan i i guess just on the uh full year expense ratio guide of 20 and a half i was wondering if you could provide just more color

and what gets you there in the second half of the year right so you're implying that there's going to be improvement is it contingent sailing off just premium growth picking up uh expensive so any color commentary would be helpful there then thanks yeah pablo so so not not a lot i can give you other than you know again i think we made this comment last quarter if you go back and look at the last five years or so of our results, I think with the exception of 2025, which was pretty steady, it's not at all unusual to see the expense ratio vary within a year by a point or more from quarter to quarter. So we've got an outlook view of what we think some of our run rate expense levels are. We line that up against what earned premium looks like. You get little math quirks, like there are actually more days of earned premium in the second half of the year than there are in the first half of the year um that's that's our view um currently there's no particular change coming in the second half of the year strategically or any kind of slow down in you know investment spending or anything like that we just think when we put the four quarters together we're going to still be pretty close to that pretty close to that 28 and a half we'll take our next question from rob cox at goldman sachs hey thanks good morning uh just a follow up on the property discussion.

I know large account property and cat rates get a lot of attention, but we've noticed travelers in the industry, you know, CMP loss ratios are at historic profitability as well. Maybe you could just talk about how you're viewing that book right now, and if we should expect the gap between large and small account pricing could start to narrow.

Yeah, let me give you a couple comments on that. Typically, you'll see, you know, in the change of cycles, national property, large schedule property leading both the firming and the softening, the trough of a marketplace. And you won't see the rest of the property portfolio fall to the depths or the peaks that you would see on national property. And that's kind of the cycle we're in right now. The property outside of national property in our core middle market business, the component underneath C&P Select that you just referenced has a little bit of softening to it, but certainly not to the degrees that you're seeing in the national property in the large schedules.

Okay, that's really helpful. And then if I could just ask more directly on some of the, you know, I think opening comments on the claims straight through processing enhancements and AI initiatives there, you know, are we starting to see that in the business insurance margin this quarter and how should we expect that to trend?

I think the answer is yes. I mean, that was the reference in Greg's script. Dan referred to it. So, we are seeing benefits coming from the investments and the innovation. I mean, it's, you know, it's a half a point improvement in the underlying loss ratio. And, you know, there's a couple of things going one way or the other in there. But that was, you know, big enough that it was worth bringing some attention to it. And I wouldn't say this is sealed the first time it's ever appeared. It's just, you know, it's in the context of some other pieces that are moving one way or another, but we are very clearly generating benefits from the innovation and AI investments that we're making.

We'll go next to Elise Greenspan at Wells Fargo.

Hi, thanks. Good morning. My first question was just going back to the BI discussion and just some of the commentary, Dan you just gave around the change in view on loss trends in the quarter does that mean um that you took down the uncertainty provision that you guys had you know put up over the last couple years uh no at least it does not so we we had the uncertainty provision in 24 and 25 and said I think at the end of the first quarter we had carried it into 26 and we continue to carry it into 2026. Okay, thanks. And then my second question, going back to the capital discussion, I know at times you guys have kind of balanced, you know, capital return relative to capital needed for growth.

As premium growth, right, is slowing relative to, you know, some of the more recent years, should we think about, you know, repurchases and dividends combined constituting a greater percentage of operating earnings from here that we should stand so I think the short answer would be over time yes I don't think you could sort of apply that to any particular you know quarter or even even necessarily full year we're going to always see what's happening in a particular quarter given profitability cat activity in particular but over time yes and that's why we made the comment probably going back now three years when the business was growing that the street, we thought, had gotten a little ahead of itself in terms of expected buybacks by not factoring in the need to hold capital for additional growth. We still expect to grow and are still growing, but to the degree that that growth might be a little slower than it had been in recent years, the need to accumulate additional capital is going to come down a little bit with it.

And we have time for one more question, and that question comes from Meyer Shields at KBW.

Thanks, Alice. I can go back to the comments you made on trading some excess margin for growth. I guess the question is that I would assume that in the fragmented small or middle market that there are companies that simply can't keep up with better pricing because of their scale and analytical advantages. Am I missing something there? I'm not sure I understand the question, mayor so let me try and rephrase like when he talked about how it's the full there and to lower pricing to gain share and i understand that conceptually but my impression or presumption is that you won't necessarily invite the same level of competitiveness because business that's very profitable for travelers it's not going to be anywhere near as profitable for companies with higher expenses and less uh capable loss control uh which would i think call for maybe a little more aggressive pricing so wondering what i'm not thinking of there yeah so so i i shared i shared sort of a principle mayor and of course there are going to be variations from that principle in

different circumstances the other thing i would distinguish is lowering price where you're actually lowering returns versus lowering price because you can do so without impairing returns and those are those are two different scenarios but there's there are circumstances that are exceptions to every rule, but as a general rule, it's our big preference not to compete on price because, you know, for all the reasons we've shared, we prefer to compete based on franchise value.

Okay, understood. And then just a quick question on surety. How should we think about the policy terms, especially for the larger projects or the data center stuff? Does that extend the earnings period for the written premium?

Larger projects might have longer durations, mayor this is jeff clink by the way good morning so there is there is an aspect on some of that the underlying terms of all of these projects are bespoke the contract between the the contract or the project owner are carefully analyzed we actually provide consultative underwriting as part of that process and so it's not like there's standard policy terms these are all individual contracts and the bond responds to those it's actually one of our competitive advantages in the service that we provide to our customers is engaging in that process, but it's fair for you to think that on some of this business, the longer they are or the larger they are, they might be longer, but for our portfolio broadly, we've got lots of different sizes of contractors and types of projects in there, so while there is some movement on some of the larger, it doesn't move the overall needle very much. Thanks for the question.

And that concludes our Q&A session. And I will now turn the conference back over to Abby for closing remarks.

Thanks, everyone, for joining us. We appreciate your time. And as usual, if there's any follow-up, please get in touch with Investor Relations. Have a good day.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.