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<span data-sheets-value="{&quot;1&quot;:2,&quot;2&quot;:&quot;Financial performance for the 160-year-old insurance holding company mostly held steady in 2020: Revenue inched up 1.3% for the year, and net income—at just shy of $2.7 billion—rose 2.9%. But that was enough to move Travelers up eight spots on the Fortune 500. The company extended its Stay-at-Home Auto Premium Credit Program last year, giving its U.S. personal auto insurance customers a 15% credit on premiums in April, May, and June. The company also accelerated commission payments to eligible agents and brokers, assisting them by putting more cash in their pockets during a difficult time.&quot;}" data-sheets-userformat="{&quot;2&quot;:12673,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:2,&quot;11&quot;:4,&quot;15&quot;:&quot;Calibri, Arial&quot;,&quot;16&quot;:11}" data-sheets-textstyleruns="{&quot;1&quot;:0}{&quot;1&quot;:248,&quot;2&quot;:{&quot;6&quot;:1}}{&quot;1&quot;:255}">Financial performance for the 160-year-old insurance holding company mostly held steady in 2020: Revenue inched up 1.3% for the year, and net income—at just shy of $2.7 billion—rose 2.9%. But that was enough to move Travelers up 14 spots on the Global 500. The company extended its Stay-at-Home Auto Premium Credit Program last year, giving its U.S. personal auto insurance customers a 15% credit on premiums in April, May, and June. The company also accelerated commission payments to eligible agents and brokers, assisting them by putting more cash in their pockets during a difficult time.</span>

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F500-2021-98-Travelers

<span data-sheets-value="{&quot;1&quot;:2,&quot;2&quot;:&quot;Financial performance for the 160-year-old insurance holding company mostly held steady in 2020: Revenue inched up 1.3% for the year, and net income—at just shy of $2.7 billion—rose 2.9%. But that was enough to move Travelers up eight spots on the Fortune 500. The company extended its Stay-at-Home Auto Premium Credit Program last year, giving its U.S. personal auto insurance customers a 15% credit on premiums in April, May, and June. The company also accelerated commission payments to eligible agents and brokers, assisting them by putting more cash in their pockets during a difficult time.&quot;}" data-sheets-userformat="{&quot;2&quot;:12673,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:2,&quot;11&quot;:4,&quot;15&quot;:&quot;Calibri, Arial&quot;,&quot;16&quot;:11}" data-sheets-textstyleruns="{&quot;1&quot;:0}{&quot;1&quot;:248,&quot;2&quot;:{&quot;6&quot;:1}}{&quot;1&quot;:255}">Financial performance for the 160-year-old insurance holding company mostly held steady in 2020: Revenue inched up 1.3% for the year, and net income—at just shy of $2.7 billion—rose 2.9%. But that was enough to move Travelers up eight spots on the Fortune 500. The company extended its Stay-at-Home Auto Premium Credit Program last year, giving its U.S. personal auto insurance customers a 15% credit on premiums in April, May, and June. The company also accelerated commission payments to eligible agents and brokers, assisting them by putting more cash in their pockets during a difficult time.</span>

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G500-2020-399-Travelers

The insurance holding company, which has been around more than 160 years, provides a wide range of commercial and personal property and casualty insurance products. The company's revenues have been impacted by COVID-19, but it says those loses have been somewhat mitigated by decreases in auto and other types of claims.

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Global business is back. After limping through a worldwide financial crisis and economic slowdown, the 500 largest companies ranked by revenues shattered all sorts of performance records in 2013: They racked up combined revenues of $31.1 trillion, up 2.5% from 2012, and profits soared 27% to nearly $2 trillion. China’s 95 companies (up from 89 last year) posted $5.8 trillion in revenues. The U.S. has four fewer companies on the list than last year but remains (for now) the country leader, with 128 corporations on the list—including No. 1 Wal-Mart Stores—reporting $8.6 trillion in revenues. 

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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Founded in 1853, the Travelers Companies is an insurance provider that operates through three main segments: business insurance, bond and specialty insurance, and personal insurance. The business, bond, and specialty insurance services are primarily distributed through independent agencies and brokers, focusing on risk management solutions for businesses. The personal insurance segment focuses on automobiles and homeowners.

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Travelers (TRV): Company Profile, Stock Price, News, Rankings

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Travelers

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Thank you. Good morning, and welcome to Travelers' discussion of our third quarter 2026 results. We released our press release, financial supplement, and webcast presentation earlier this morning. All of these materials can be found on our website at travelers.com under the Investors section. Speaking today will be Alan Schnitzer, Chairman and CEO, Dan Frey, CFO, and our three segment Presidents, Greg Toczydlowski of Business Insurance, Jeff Klenk of Bond & Specialty Insurance, and Michael Klein of Personal Insurance. They will discuss the financial results of our business and the current market environment. They will refer to the webcast presentation as they go through prepared remarks, and then we will take 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 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, Abby. Good morning, everyone, and thank you for joining us today. We're pleased to report excellent third quarter results. It was another in a run of successful quarters with very strong underwriting performance across all three segments and a record result from our investment portfolio. We also continue to make steady progress on important strategic initiatives that will continue to set us apart. For the quarter, we earned core income of $1.95 billion, or $9.18 per diluted share, generating core return on equity of 22.1%. Over the trailing four quarters, we generated core return on equity of 24.1%. Underwriting income of $1.4 billion pre-tax was driven by strong levels of underlying underwriting income and net favorable prior year reserve development. Profitability was excellent on both a reported and underlying basis.

The combined ratio improved to 86.8%, and the underlying combined ratio remained very strong at 84.1%, with all three segments posting strong contributions. Turning to investments, our high-quality investment portfolio continued its trajectory of delivering higher levels of net investment income. After-tax net investment income increased by 7% to $908 million, benefiting from strong and reliable returns from our growing fixed income portfolio and a strong result from our non-fixed income portfolio. Our underwriting and investment results, together with our strong balance sheet, enabled us to return $1.8 billion of excess capital to shareholders during the quarter, including $1.5 billion of share repurchases. Just since the beginning of 2025, we have returned $8 billion in capital through share repurchases, retiring 12% of the shares then outstanding in the process.

Even after the return of capital and having made substantial investments in the business, adjusted book value per share at the end of the third quarter was 24% higher than at the beginning of 2025 and 15% higher than a year ago. Turning to the top line, we generated net written premiums of $11.5 billion in the quarter. In Business Insurance, we grew in every line other than property, generating net written premiums of $5.9 billion. That is 4% higher than the prior year quarter, adjusting for the sale of our Canadian business. Across the board, the triad of renewal premium change, retention, and returns reflects outstanding and deliberate execution. Renewal premium change in the segment was 4.1%, including renewal premium change of 5.4% in our core middle market business and 7.8% in our small commercial Select business. Excluding the property line, renewal premium change in the segment was 7%.

Retention, which as you have heard us say before is an important indicator of marketplace stability, remained very strong at 86% and was higher or stable in every line. New business of $699 million was up 4% over the prior year quarter. To be growing 4% ex Canada at such strong returns is a terrific achievement. In Bond & Specialty Insurance, we also delivered terrific growth and strong returns. We grew net written premiums by 12% to $1.2 billion. In our management liability business, renewal premium change improved sequentially to 3.8%, while retention remained steady at an excellent 89%. New business was up 18% over the prior year quarter. In our leading surety business, we grew net written premiums by 21%, reflecting continued strong production across the portfolio.

In Personal Insurance, we generated net written premiums of $4.4 billion, with solid retention in both auto and homeowners and higher new business and homeowners. You will hear more shortly from Greg, Jeff, and Michael about our segment results. Before I turn the call over to Dan, I would like to spend a few minutes on an important focus of our innovation work, defending our customers against legal system abuse. Lawsuit abuse raises costs for everyone, from the businesses and families we insure to every corner of the broader economy. Liability across GL, umbrella, auto, and CMP is a significant share of our loss costs. While conditions have been generally consistent with our expectations, the drivers remain active and continue to put upward pressure on liability losses. Our approach is straightforward, resolve legitimate claims fairly and promptly by paying what we owe.

We were early to recognize the change in the litigation loss environment at the end of 2018, and that gave us a head start in investing in technology and developing innovative claim strategies. We believe that gives us a meaningful early mover advantage, and our innovation efforts are now giving us tools we have never had before. Let me share a few examples. For unrepresented claimants, we have developed a digital tool to help resolve claims promptly and fairly. It is grounded in our simple philosophy of empathy, education, and empowerment, which we have built directly into the experience. In a pilot, more than 80% of the claimants to whom we have offered the tool have engaged with it, and overall results are very encouraging. When a claimant has an attorney, we are using AI to sharpen our responses to their demands. It starts with the file.

AI gives our claim professionals a faster, deeper command of claim files that can run hundreds of pages. It surfaces key facts and issues and helps shapes arguments. That makes our people both more effective and more efficient. Consistent with our longtime practice of maintaining a tight feedback loop between claim and underwriting, which is how we were so early to recognize social inflation in the first place, the technology also feeds granular loss information back to our underwriters. A more accurate view of loss information drives better risk selection, pricing, and claim strategies. We pay what's fair, and when we can't resolve a claim at what we believe is a fair outcome, we're prepared to defend our customers in litigation. We choose our matters carefully, and the outcomes demonstrate that we're effective when we do.

Beyond the direct financial impact of our success in litigation, our approach helps set realistic expectations from the start, and that's part of the value proposition we bring to our customers. These are just a few illustrations of a broader proprietary effort that leverages talent, technology, behavioral science, and more. What we're doing now isn't about doing what we've always done a little better. We've developed new and growing capabilities that let us do what simply couldn't be done before. We believe our expertise, capabilities, and approach will help us bend the loss cost curve. As we continue to invest, we expect this to deliver growing value for our customers and shareholders, building on the benefits we've already seen from some of our initiatives.

To wrap it up, our excellent underwriting and investment results through the first nine months of the year reflect our unmatched competitive advantages and the strength of the value proposition we offer to our customers and distribution partners. We are well-positioned to close out an outstanding year. That momentum, the advances we are making on our innovation agenda, and the best talent in the industry give us tremendous confidence heading into 2027 and beyond. With that, pleased to turn the call over to Dan.

Thank you, Alan. In the third quarter, we once again delivered excellent financial results on a consolidated basis, and in each of our three segments. Core income for the quarter of $1.95 billion marked our sixth consecutive quarter with earnings of more than $1 billion and brings our trailing 12-month core return on equity to 24.1%. Both the quarter and the trailing 12 months reflect excellent underwriting results, coupled with strong investment income. We generated slightly higher net written premiums despite the absence of the Canadian businesses we sold at the beginning of 2026, while delivering excellent combined ratios on both a reported and underlying basis. At 84.1%, the underlying combined ratio marked its ninth consecutive quarter below 86%. The combination of strong earned premiums and the excellent underlying combined ratio led to after-tax underlying underwriting income of $1.4 billion, continuing our run of historically strong underlying underwriting results.

Our year-to-date after-tax underlying underwriting income of $3.9 billion is virtually identical to last year's record level despite moderating pricing and the sale of our Canadian business, demonstrating the durability of our underlying underwriting earnings power. The expense ratio for the third quarter was 28.9%, bringing the year-to-date expense ratio to 29%. Regarding the expense ratio outlook, the continued strength of our consolidated underwriting performance I just described results in variable expenses like profit sharing and contingent commissions coming in higher than planned. That's a trade we're very willing to make, and it results in an uptick for our expected full-year expense ratio, which we now expect to come in a little below 29% for 2026 and about the same for 2027. Catastrophe losses in the quarter were $538 million pre-tax, consisting mainly of tornado hail events in the central U.S.

Turning to prior year reserve development, we had total net favorable development of $234 million pre-tax, with favorability in all three segments. In Business Insurance, the annual asbestos review resulted in a charge of $295 million. Excluding asbestos, Business Insurance had net favorable PYD of $336 million with favorability in every line. In Bond & Specialty, net favorable PYD was $95 million pre-tax, with favorability in fidelity and surety as well as management liability. Personal Insurance had net favorable PYD of $98 million pre-tax, with favorability in both home and auto. Turning to investment income. For the first time ever, after-tax net investment income surpassed $900 million for the quarter, up 7% from the prior year quarter. Fixed maturity NII was again the driver of the increase, reflecting both the benefit of higher invested assets and higher average yields.

Through the first three quarters of 2026, we've grown our investment portfolio by approximately $6 billion, even after having returned a record level of capital to investors through dividends and share repurchases. Our outlook for fixed income NII in the fourth quarter, including earnings from short-term securities, is up slightly from the outlook we provided a quarter ago, now expecting approximately $875 million after tax in Q4, bringing the full year 2026 total to $3.3 billion. For 2027, we expect more than $3.6 billion, with quarterly figures starting at around $875 million in Q1 and growing to around $965 million in Q4. New money rates on purchases during the third quarter were roughly 120 basis points above the yield embedded in the portfolio.

A significant increase in interest rates during the quarter resulted in an increase in our net unrealized investment loss from $2 billion after tax at June 30th to $6.4 billion after tax at September 30th. This is a good time to remind you that the unrealized loss in our investment portfolio is interest rate-driven, not credit quality-driven. Remember, the changes in unrealized investment gains and losses do not impact how we manage our investment portfolio. We generally hold fixed income investments to maturity. The quality of our fixed income portfolio remains very high, and the changes in unrealized gains and losses have little or no impact on our cash flows, statutory surplus, or regulatory capital requirements. Of course, the same rise in rates that increase the unrealized loss is a tailwind for future results. As we reinvest at higher yields, it supports higher continued growth in net investment income.

Adjusted book value per share, which excludes net unrealized investment gains and losses, was $172.47 at quarter end, up 9% from year-end and up 15% from a year ago. Turning to capital management, operating cash flows for the quarter of $3.9 billion were again very strong and brought the year-to-date operating cash flow figure to $8 billion. Also of note for Q3, in July, we issued $750 million of five-year debt at an attractive rate of 4.95% as part of our ordinary capital management, maintaining a debt-to-capital ratio in our target range as we continue to grow the business. Sticking with the theme of capital management, we returned $1.8 billion of capital to our shareholders in the quarter, with share repurchases of $1.5 billion and dividends of $261 million. Before I wrap up, let me add one comment about the fourth quarter for your modeling purposes.

Effective October 1st, we increased the percentage ceded to our cyber reinsurance quota share. That will reduce net written premiums by about $165 million in Q4 and by about $230 million for full year 2027, primarily in the Bond & Specialty segment. We expect the impact on bottom-line earnings to be de minimis in both years. Recapping our results, Q3 was another quarter of excellent underwriting profitability on both an underlying and as-reported basis, and another quarter of rising net investment income. These strong fundamentals delivered core return on equity of 22.1% for the quarter and 24.1% on a trailing 12-month basis, and we continue to be very well-positioned to deliver strong results in the future. Now for a discussion of results in Business Insurance, I'll turn the call over to Greg.

Thanks, Dan. Business Insurance had another very strong quarter, delivering record third quarter segment income of $1.04 billion and continued solid top-line growth. This quarter's results reflect the continued benefit of strong underwriting results, driven by higher earned premiums and a combined ratio that improved two points to a terrific 90.9%. We're particularly pleased with our underlying combined ratio, which remains strong at 88.9%. Beyond our execution in the marketplace, we're encouraged with the contributions we're seeing from our ongoing strategic investments. For example, our ongoing advancement of analytical capabilities, including the utilization of sophisticated predictive models, continues to enhance our risk selection and pricing segmentation. The expanded use of external data sources, such as aerial imagery, in combination with our proprietary historical claim data, further equips our frontline underwriters with the insights they need to make better decisions at the point of sale.

Within property, analytics have supported our improvements and insured the value and deductible adequacy, which has contributed to a stronger and well-positioned book. We believe these and other strategic investments will be important contributors to our continued success and long-term profitable growth. Turning to the top line, our net written premium reached a third quarter record at $5.9 billion. Domestic net written premiums grew 4%. Excluding the property line, domestic net written premiums grew 6%. Net written premiums and national property continue to decline. We remain focused on writing business only where price and terms align with our view of the risk and our return objectives. Turning to production across the segment, renewal premium change was 4.1%. Excluding the property line, RPC was 7% and positive in all lines. Retention remained excellent at 86%, a reflection of strong returns and our continued focus on retaining our high-quality book of business.

New business was strong at $699 million, up 4% from the prior year. We're pleased with these production results and our field's continued execution of our proven segmentation strategies, aligning price, terms, and conditions with environmental trends for each line. As for the individual businesses, in Select, renewal premium change was strong at 7.8%, while retention was steady at 81%. New business of $139 million was up 3% over the prior year. These results reflect the industry-leading segmentation in our product offerings, including BOP 2.0 and TCAP, our commercial auto product, as well as the digital experience we deliver to our distribution partners. In middle market, renewal premium change was 5.4%, while retention remained exceptional at 89%. New business of $431 million was up 10% over the prior year.

Our continued profitable growth is supported by predictive models that guide our underwriters' granular execution at every step, from prospecting and quoting new business through renewals. Once again, another terrific quarter for Business Insurance. We're energized by both the strength of our current execution and the additional capabilities we continue to build. Capabilities that we believe will drive our continued success through the remainder of 2026 and beyond. With that, I'll turn the call over to Jeff.

Thank you, Greg, and good morning, everyone. We're pleased to report that Bond & Specialty posted an outstanding quarter on both the top and bottom lines. We generated record segment income of $309 million, driven by strong earned premium and a terrific combined ratio of 77.3%. Turning to the top line, we grew net written premiums by a very strong 12% in the quarter to $1.2 billion. In our high-quality domestic management liability business, we drove retention to a very strong 89% while improving renewal premium change by nearly a point sequentially. We are very pleased that we also increased new business by 18% from the prior year quarter. These results reflect terrific execution by our outstanding field organization, leveraging our strategic investments in enhanced pricing segmentation tools and sales effectiveness capabilities.

Turning to our market-leading surety business, we posted excellent net written premium growth of 21% from the prior year quarter, continuing the recent trend of strong production across our high credit quality portfolio. Our growth this year is primarily attributable to our portfolio of premier contractors that are well-positioned to deliver on large public and private infrastructure projects that have driven construction spending, as well as meaningful contributions from new account relationships as more customers choose a carrier with exceptional financial strength, market-leading value-added services, and an unparalleled team. Bond & Specialty Insurance delivered terrific profitability and excellent growth in the quarter while continuing to make strategic investments to further extend our competitive advantages. With that, I'll turn the call over to Michael.

Thanks, Jeff, and good morning, everyone. I'm very pleased to share that Personal Insurance delivered third quarter segment income of $706 million. Strong underlying income and favorable prior year reserve development both contributed to this excellent bottom-line result. The combined ratio of 83.5% was a terrific result in the quarter. Catastrophe losses were favorable to our plan and continued to benefit from the actions that we've taken to reduce volatility across our portfolio. The underlying combined ratio of 76.7% improved by one point compared to the prior year and continues to demonstrate strong profitability in both automobile and homeowners and other. Net written premiums for the segment were $4.4 billion in the third quarter as pricing continued to moderate, reflecting strong profitability while retention remained solid.

New business premium in homeowners was higher year-over-year as we thoughtfully deployed property capacity in support of our efforts to generate profitable growth. Third quarter homeowners' net written premiums also benefited from our decision not to renew the PI property XOL treaty, which would have taken effect July 1st. As Dan mentioned last quarter, it was more cost-effective to obtain the coverage we sought through the lowering of the attachment point on the corporate catastrophe XOL treaty. In auto, the third quarter combined ratio of 87.1% reflects a strong underlying combined ratio and favorable net prior year development. The underlying combined ratio was 87.3%, a one-point improvement compared to the prior year. This strong result was driven by continued favorable loss experience across coverages. This quarter's result included about a 1.5 point benefit related to the re-estimation of prior quarters in the current year.

Looking ahead to the fourth quarter of 2026, it's important to remember that the fourth quarter auto underlying loss ratio has historically been about 5 points-6 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 was a very strong 80.5%, and the underlying combined ratio of 68% was outstanding and comparable to the prior year. Turning to production, in auto, retention was 81%, while renewal premium change was slightly negative as we continue to incorporate sustained levels of profitability into our pricing. We remain pleased with the high-quality profile of the new business we're writing as we maintain our disciplined approach to managing base rate levels and further enhancing our sophisticated segmentation.

In homeowners and other, retention of 85% remained strong while renewal premium change continued to moderate, reflecting strong profitability and replacement costs that are generally aligned with insured values. We were pleased that for the third consecutive quarter, new business premium was higher year-over-year, driven by our intentional and disciplined efforts to deploy property capacity. We continue to invest in strategic capabilities that will deliver sustainable, profitable growth. At the same time, we're executing complementary marketplace actions that include expanding distribution by appointing new agents and actively pursuing book consolidation opportunities. These deliberate efforts, combined with our strong agent relationships, portfolio solutions for customers, and industry-leading claim capabilities, position us to be the undeniable choice for consumers and an indispensable partner for our agents.

To sum up, this was another great quarter for Personal Insurance on the bottom line, and we continue to focus on taking a measured, thoughtful approach to profitably growing our business over time. Now, I'll turn the call back over to Abbe.

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

We will now begin the question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. Please limit yourself to one question and one follow-up question. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Paul Newsome with Piper Sandler. Paul, your line is open. Please go ahead.

Paul, your line is open. Please go ahead.

We can come back to Paul. Maybe we'll take the next caller.

Your next question comes from the line of David Motemaden with Evercore ISI. David, your line is open. Please go ahead.

Hey, thanks. Good morning. Alan, you've discussed, and Dan as well, you guys have discussed the durability of the $5.5 billion of underlying underwriting income. I didn't hear you guys say that again explicitly, so it sounds like you guys are definitely on pace for that this year. But I'm wondering how you're thinking about that into next year, just given the moving pieces with the market cycle and where we are.

Yeah. Good morning, David. Thanks for the question. We would absolutely reiterate the durability of underlying underwriting income. Just to give you a little color behind that, putting it in some historical context, we are a larger, more profitable company than we've been historically. Strong competitive advantages with a strong value proposition, demonstrated success with innovation and investing. We think AI gives us tremendous opportunity. As I've been saying, I think if I wrote it for the first time in my 2022 annual letter, we think scale is going to be increasingly important. So we think all of that will continue to give us the ability to out-select and out-price. So that gives us great confidence in the durability of the underlying underwriting income.

Yeah, David, it's Dan. The only thing I'd add to that is you shouldn't mean that doesn't mean it's not going to move a little bit one way or the other. The other comment that Alan Schnitzer's made relative to that metric is we don't know if 2027 is going to be a little higher than that, a little lower than that, or flat. But the ZIP code that we're in now is just a completely different ZIP code than we used to be in, and we don't see any reason that that's likely to change.

Got it. Thanks. That's helpful. Then maybe just on the favorable PYD in Business Insurance. So it sounds like that was across all lines, so I'm assuming that that included general liability. Could you just confirm that, maybe talk about which accident years you're seeing that and maybe just how you guys are thinking about the level of IBNR that you guys have been putting up over the last few years?

Yeah, David. So we feel great about where the balance sheet is, as we've said now for a couple of years. It was all lines across the board, so we saw favorability in commercial auto, commercial property, CMP, general liability, workers' comp. None of them were particularly outsized, although in aggregate, a number as big as we talked about on the call is a very good result. So I would say we continue to be thoughtful about the reserves that we carry on the book, respectful of the long-term loss trends that could come out of the liability or the comp lines. As things emerge somewhat favorably to what we had provided for in our prior picks, we're getting PYD. But yes, across the board, including GL.

Your next question comes from the line of Gregory Peters with Raymond James. Gregory, your line is open. Please go ahead.

Well, good morning, everyone. I guess kind of building on the last question, I'd like to see if you could give us some comments on your view of loss cost trend inside Business Insurance. I guess I'm looking at it because I'm watching the renewal rate change premium slide down. Also, I was intrigued by your comments, Alan, about the commercial auto liability and the other casualty claims and the pressure you continue to see there. It just kind of brought to my mind, are you foreshadowing another negative step change in sort of how the loss cost trend is moving in those lines?

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

Okay. I guess then I'll pivot. This quarter's new development was the rollout of Muse, and obviously there's other tech initiatives that are spooking the market with their potential to disrupt distribution. Maybe it's mostly focused in Personal Insurance, but there is some crossover into the small and middle market commercial area, too. Maybe you could just step back and provide us some perspective on your value of your current agency distribution model, and maybe also give some nuggets on how you are working with these new initiatives to help get to your objectives.

Thanks for the question, Greg. Mike, you want to take that?

Sure, I'll take it, Greg, because to your point, Muse in particular, at least today, is mostly focused in the Personal Insurance space. Certainly Greg's team and mine have been collaborating, and he can chime in as well. The first thing I would say just broadly about Muse and AI assistants is it's early days, right? The actual volume of observable activity is pretty minor. I think there are a lot of things that could potentially impede the pace and scope of change there. We've got to pay attention to consumer adoption. We've got to work through technology and data dynamics. There's a variety of legal and regulatory considerations as we deal with these developments and work in this space. Just to put a point on it, if and when you're engaging with an AI assistant, you got to confirm a number of things, right?

First and foremost, is that AI assistant actually authorized by the consumer that's doing the shopping? Secondly, is the consumer affirming and confirming that the information provided is accurate? Third, and probably most importantly, does the customer actually understand what they're buying? Those things aren't sort of particularly transparent and clear as you engage digitally in this space. Those considerations grow in importance with the size and the complexity of the asset or the risk that you're insuring. So we're engaged in exploring the opportunities and the threats here. We're going to continue to test and learn and make sure that we're prepared to respond. We've been building digital capabilities across the organization for a really long time. On the commercial side, we've got Simply Business and Zen. In Personal Insurance, we've got InsuraMatch and D2C, and I think we'll be prepared for wherever this goes.

Yeah, Greg, I would just add to that if you look at a continuum of risk from the most complex to the least complex

The stuff that trades digitally today, and I do think it's important to remember that customers can trade digitally today, but the things that actually trade digitally are way over at the simplest end. It's renters, it's pet, it's that sort of stuff. You get mildly more complicated, people might use the technology to shop and do some price discovery, but very often they opt out to talk to a person. Unlike a lot of other commerce where you can imagine digital trading being more popular, in a complicated domain like insurance, so far it hasn't been the case. But to Michael's point, going back 20 years talking about D2C, we contemplated the world would get more digital. We didn't invest in D2C because we thought we were going to be a leader in D2C.

We invested in D2C 20 years ago because we wanted to make sure we had the capabilities of a digital company. Certainly we wanted to understand distribution, but we also wanted to understand how to engage with our distribution partners, how to service our customers. More recently, when we acquired Simply Business and Zen and InsuraMatch, that was also with the thought that the world was going to be more digital. So, you can get a sense of our view that we think this is going to be sort of a measured adoption to the extent there is adoption. But wherever it goes, we are very prepared for it.

Your next question comes from the line of Tracy Benguigui with Wolfe Research. Tracy, your line is open. Please go ahead.

Thank you. Good morning. I want to go back to David's reserve development question. Sounds like you built conservative loss picks, so the loss experience might be more favorable to that. I'm just curious how much time needs to pass to assess that. I appreciate your confirmation the releases came from GL and commercial auto, but I think it's important to have a better understanding of those accident years. I noticed in the 10-Q you said that it was more recent years.

Yeah, Tracy, it's Dan. I don't know that I would use the word conservative when we came up with our loss picks. I think what we've tried to say is we're making certain that we're leaving a provision for the level of uncertainty that comes out of those long tail lines and the more recent changes in development patterns and attorney rep rates and things like that. Look, we had a number of years contribute to the favorability in PYD this year. I think if you just look at the gravity of where most of the reserves, and particularly IBNR is, it is naturally going to be in the most recent accident year. I think not a big surprise there.

You shouldn't read that as saying that we've changed our view in terms of whether there still needs to be consideration for and respect for the potential uncertainty in those lines and the health of the IBNR that we continue to maintain. But as quarter after quarter goes by and we've seen things come in a little bit better, we felt it was appropriate to take some reaction here. We certainly have not run to the other side of the boat.

Okay, got it. Select renewal premium change improved in the second quarter, but you gave that improvement back in the third quarter, and the slowdown was driven mostly by rate rather than exposure. I am just curious, which quarter was the anomaly and how we should be thinking about the underlying trend from here?

Yeah, Tracy, this is Greg. I did share with you last quarter that depending on what filings state by state get approved quarter to quarter, you can have some variation. And of course, you have Select accounts that are coming up for renewals in each quarter. I would not say one quarter was an aberration more than the other. Every day we look at that business in terms of what the returns are in that business and what the pricing and new business needs to be, and that is how we execute.

Your next question comes from the line of Katie Sakys with Autonomous Research. Katie, your line is open. Please go ahead.

Morning. It's a quick one from me. Just kind of wanted to get your thoughts here on the Business Insurance segment premium growth results. I think pro forma ex property, quite a strong result there this quarter. If I think about where RPC has trended this year and might continue to trend going forward, as well as Greg Toczydlowski's prepared remarks on underwriting discipline, how are you guys thinking about growth momentum as you start looking at 2027 in BI?

Katie, good morning. I don't think we're going to give outlook on the top line, other than to say we feel great about the execution and the growth we put on the books this quarter, and we feel like we've got all the capabilities and value proposition to continue to be successful at executing in the market. We feel great about next year, and we're optimistic. But we're going to stop short of indicating a trend or giving a number.

Your next question comes from the line of Josh Shanker with Bank of America. Josh, your line is open. Please go ahead.

Yeah. Thank you very much for taking my question. The margins are fantastic, and I'm sure that you'd like to get every piece of business that fits your underwriting appetite. But the growth across a lot of lines is flattish or not moving very much. As you innovate with all these opportunities in technology and artificial intelligence, and you're able to save money, to what extent is the goal to pass those savings on to the customers to make your value proposition more attractive than your competitors in terms of price action? Do you see an opportunity for you to outgrow your competitors by cutting costs with no impact on your margins?

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

You can look at the excellent underwriting result, but it's hard to draw a very straight line from the improved insights we're giving the underwriters and exactly that outcome. So it's a little bit harder to see that. But taking a step back, the combination of the ways that we can deploy the operating leverage and the benefits that we can't quantify are embedded in the results that we have. If we decide that we want to redeploy some of those into pricing without compromising our return objectives, we'll do that.

Well, do you have a confidence if we look five years out, you will be taking a greater share of your agent's business overall, a higher percentage of their footprint, I guess, than you have right now?

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

Okay. Thank you for the answers. Appreciate it.

Your next question comes from the line of Michael Zaremski with BMO. Mike, your line is open. Please go ahead.

Hey, thanks. Good morning. In commercial lines, I don't believe there was any kind of color on RPC rate change drivers this quarter. If you would be willing to just unpack whether there's any particular line or lines that are driving the downwards trend line. Thanks.

Yeah. Mike, good morning, and thanks for the question. Let me just step back and just make a few observations about the overall pricing environment. If there's one word over the top to describe it, I would say it's stable. I'm not going to get into what RPC did by every single line. But just for example, the sequential change in RPC and property was small. It was very small. We're not prepared to call a bottom. Certainly, you couldn't call a bottom off one data point, and who knows what's going to happen 90 days from now. But we were very pleased to see a very small change there. The sequential movement in RPC in the liability lines, and now I'm talking about GL and umbrella, was also modest. So all in all, pretty orderly.

We talk all the time about the fact that we execute one account at a time. We're looking at the next account and deciding whether we want it in the portfolio and at what price. It's also just a reflection of the returns by line. If you look at, by line, pricing, retention, and return, it's a perfectly rational picture across the board. The execution couldn't be better.

Got it. Thanks, Alan. My follow-up, just going back to a lot of the good color you have given on Travelers' innovation on the claims front and underwriting front. I think, Alan, you talked specifically about expecting to bend the loss curve, I believe, in casualty. If I juxtapose that with IBNR levels currently in the long-tail casualty lines, specifically commercial auto and commercial casualty non-comp, is it fair to say that the current IBNR are higher than the company's long-term targets? If you do bend the loss curve trend, the IBNR levels would mean revert over many years lower? Thanks.

Mike, it's Dan. I'll try that. Look, I think one thing that's happened, especially if you want to look at the components of reserves between case and IBNR now versus three years ago or five years ago or 10 years ago, I don't think we're ever, literally ever going to go back to the levels that we saw 10 years ago because attorney rep rate is higher. That lengthens the tail. More claims come in later. That's really a point that we made a few years ago in 2024, when we started talking about an uncertainty provision to allow for the possibility that those trends would continue. When Alan referenced earlier in his comments pressure on the loss cost, which somebody else asked about

That just means loss costs continue to go up, but they are not going up by any more than we anticipated in our picks. I think the component of our ultimate loss picks is perfectly logical given the current development patterns. If, in fact, the actions that we're taking in our claim organization translate into a better outcome, then for sure, there's going to be some IBNR that we ultimately don't need, but we are not projecting that as we sit here today.

Your next question comes from the line of Elyse Greenspan with Wells Fargo. Elyse, your line is open. Please go ahead.

Hi, thanks. Good morning. My first question is on the expense ratio guide. I think you guys said a little under 29% this year, and then guided to the same level next year. Understanding this year it's a little higher than expected on variable comp, but as we think about next year, are some improvements around AI maybe being offset by other things that you expect 2027 to be more or less stable with where you're now expecting 2026?

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

Thanks. Then my second question is on the Business Insurance underlying loss ratio. That went up by about 50 basis points from last Q3. You guys didn't call it anything in the prepared remarks, so maybe there was nothing that significant, but was there non-CAT weather or anything else you would describe as the drivers of the year-over-year change there?

Yeah, Elyse, Dan. I think you're right in the first place, not a very big change and nothing in particular to call out. It's a great number and it moved by about a 0.5 point year-over-year, which could have easily moved 0.5 point the other way. A bunch of stuff in there, as there always is. The impact to pricing, product mix. There are changes in non-CAT property losses. There's base year changes. There's the impact of strategic investments we're making, as Greg mentioned in his remarks again, but none of those things were particularly noteworthy this quarter.

Your next question comes from the line of Andrew Kligerman with TD Cowen. Andrew, your line is open. Please go ahead.

Hey. Thank you. Good morning. I am looking at slide seven of your presentation, and it just really strikes me how strong net investment income improves year after year. The question is, and your combines are fantastic, is that going to start to weigh into your pricing? How are you thinking about net investment income with respect to pricing?

Andrew, good morning. We do have a link between our expectation for net investment income and our insurance pricing. It's of course part of the model. Just a couple of things to think about, though. The portfolio turns over relatively slowly, so it takes a while to earn in. As the risk-free rate goes up, our hurdle returns go up. You sort of have to put all that into the blender to figure out what the impact is.

Got it. Personal lines. We saw renewal premium change go down 0.6% in auto. IF was down 3% in auto, down 4% in homeowners. Could you talk a little bit about the competitive landscape in personal lines? With all this competition, how are you defending the fort? How are you going to keep IF up rather than down?

Sure, Andrew. It's Michael. I think the comments that I made in my prepared remarks are really key to what we're doing there. To be clear, we're definitely not one to case premium growth at all costs in any given short period of time, right? Our objective is to profitably grow this business over time. We do that by matching price to risk. You see that activity in the RPC numbers that you're looking at. In the third quarter of this year, we took about 10 rate decreases in auto. Again, still in that same low single-digit range that we've been talking about, but as we monitor our performance and look at loss costs, we adjust pricing. That's certainly a lever that we pull.

We continue to make strategic investments in products and services and capabilities that make sure that we have the products and services our customers want to buy and our agents want to sell.

And then we do quite a bit around distribution management, making sure that we've got the agents appointed that we need, and that we are taking advantage of opportunities to solve problems for them. When I talk about book consolidation opportunities, as an example, that's when we're working with an agent or a broker who's having issues with another carrier, and we talk to them about bringing that business over to Travelers. There are a number of things that we're doing from an appetite, pricing, and distribution management standpoint, both to defend the fort, to use your words, but also to play offense to make sure that we're leveraging the capabilities we have to profitably grow the business over the long term.

Your next question comes from the line of Yaron Kinar with Mizuho. Yaron, your line is open. Please go ahead.

Thank you. Good morning. I want to start maybe with cyber insurance. Just given Hugging Face AI agents, maybe more hacking activity and capabilities, is this the line of business that is a viable business line for the private market? Do you need maybe more government support or more systemic intervention here? How are you thinking about that?

Good morning, Yaron. This is Jeff. As consistently highlighted by the Travelers Risk Index, cyber is one of the most important topics that our customers are facing. It's a dynamic exposure, and it has been, there's no question that the advanced AI models are adding to that dynamic. I'd remind you when you think about our portfolio, it's heavily weighted toward the middle market, Main Street businesses. We've always been focused on limits management. If you look inside our book of business, a substantial majority of our limits are at $1 million or less. Those accounts that are above that are predominantly at $5 million or less, and that's before you take into account any reinsurance that we have in place. Cyber's always been one of our most heavily reinsured lines of business.

The last thing I'd share with you is that we've really invested heavily in risk control capabilities, including our acquisition of Corvus a few years ago that we've shared with you. We're not just assessing these accounts on the front end as we put them into the portfolio. We've got ongoing risk control capabilities to help them manage the risk. I think we are investing to address the exposure in partnership with our customers in many ways.

Yeah, Yaron, to the extent that was a public policy question and question about whether we need a government backstop, I don't really know. There's active conversations about that now, and we'll see how that plays out.

Travelers (TRV) Q3 2026 Earnings Call Transcript

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