The Travelers Companies, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Underwriting and Investment: Earned core income of $1.5 billion or $6.51 per diluted share, core return on equity 18.8%. Combined ratio improved to 90.3%, with underlying combined ratio 84.7% (third consecutive quarter below 85). Net investment income was $774 million, driven by fixed income portfolio. Returned over $800 million to shareholders, including $557 million in share repurchases.
• Top Line Growth: Net written premiums grew to $11.5 billion, with growth in all segments. Business Insurance grew net written premiums 5% to $5.8 billion; Bond and Specialty 4% to $1.1 billion; Personal Insurance 3% to $4.7 billion.
• Capital Allocation: Announced sale of most Canadian business to Definity for $2.4 billion, expecting to allocate $700 million of net cash proceeds for share repurchases in 2026. Reaffirmed commitment to disciplined capital allocation and value creation.

Segment Performance

• Business Insurance: Net written premiums increased 5% to $5.8 billion, with segment income of $813 million, up nearly 25% from the prior year quarter. Underlying combined ratio was 88.3%, improving almost 1 point from the prior year. Renewal premium change was strong at 7.7%, with 8.6% in core middle market and 10.7% in small commercial select. New business was a record $744 million.
• Bond and Specialty Insurance: Net written premiums grew 4% to $1.1 billion, generating segment income of $244 million. Underlying combined ratio was 87.8%. Renewal premium change in management liability was 3.2% with retention at 87%, and surety business saw 5% growth in net written premiums.
• Personal Insurance: Net written premiums grew 3% to $4.7 billion, with segment income of $534 million. Combined ratio improved 20 points relative to the prior year quarter, driven by a decrease in catastrophe losses and a seven-point improvement in the underlying combined ratio to 79.3%. Renewal premium change was higher in homeowners.

Guidance

• Fixed Income NII: Expect approximately $770 million after tax in Q3 and $805 million after tax in Q4.
• Share Repurchases: Anticipate using about $700 million of net cash proceeds from Canadian business sale for share repurchases in 2026.
• Expense Ratio: Expect full-year expense ratio 28% to 28.5%.

Risks

• Regulatory Environment: Challenges in the Canadian marketplace due to evolving regulatory environment and competitive landscape.
• Market Volatility: Potential impact of weather volatility and economic conditions on underwriting results.
• Tort Inflation: Continued presence of social inflation and tort costs affecting loss ratios.

Question and Answer

Q: Good morning, everyone. So I think for the first question, I'll zero in on business insurance and pricing. Looking at the renewal premium change both in business insurance ex-national accounts and select accounts in middle market, I feel like pricing's holding up pretty good. Maybe there's some pockets of weakness that you're seeing or some pressure. But Greg, in your comments, you talked about in the large national account market, losing some accounts to the subscription market. When you talk about the pricing environment, how much of the select or middle market business has exposure to potential market price competition? And, you know, and just some additional color on where you're seeing pricing pressure in the middle markets business?

A: Yes. Good morning, Greg. Yes. First of all, it wasn't cash. It was national property that I referenced. And so, yeah, typically, you would see, you know, a shared in layer a large property schedule be built into a tower and definitely seeing that some of the softer element of the property business, in those larger schedules. That would leak a little bit into the top end of middle market, but not much and not be relevant for Select. Alan Schnitzer: Greg, just to come back and paint a picture here. And I think Greg laid out a lot of detail in his answer, but just to create the context again, I think as he shared, price in national property was lower. Workers' comp pricing was about the same, but price change in every other line including the component of property that's outside of the national property business, was actually quite strong. And in that context, I would also point to retention which we've always shared as a real indicator of market stability. So you know, we are quite comfortable with the very, very strong execution.

Q: Good morning, everyone. I'm very pleased to share that Personal Insurance delivered segment income of $534 million for the second quarter of 2025. Significantly improved underlying underwriting income and favorable prior year development contributed to this excellent bottom line result. The combined ratio of 88.4% improved 20 points relative to the prior year quarter, driven by a decrease in catastrophe losses of nearly 14 points and a seven-point improvement in the underlying combined ratio. The underlying combined ratio was 79.3%, reflecting the benefit of the actions we've taken to improve the fundamentals of our business in both auto and homeowners. Net written premiums grew 3% in the quarter, driven by higher renewal premium change in homeowners. In automobile, the second quarter combined ratio was 85.3% and included a five-point benefit from favorable prior year development. The underlying combined ratio of 89% improved 6.2 points compared to the second quarter of the prior year. This improvement was driven by favorable loss experience across both bodily injury and vehicle coverages, and to a lesser extent, the benefit of higher earned pricing. Turning to production, our results reflect further progress toward positioning our diversified portfolio to deliver long-term profitable growth. In domestic automobile, retention of 82% remained consistent with recent periods. Renewal premium change continues to moderate as intended, reflecting improved profitability and our focus on returning to profitable growth in auto. We're pleased to note that auto new business premium increased 12%. In addition, for the first time in more than a year, we wrote more new business policies than in the prior year quarter. The new business momentum was primarily driven by our continued efforts to improve auto growth. The relaxing of some of our property restrictions also contributed to the new business momentum in auto. In domestic homeowners and other, retention remained relatively consistent. Renewal premium change of 19.3% reflects our continued actions to align insured values with rising replacement costs and secure rate increases in geographies where we have the need. The decline in homeowners policies in force continues to be a result of our deliberate actions to manage exposures in high cat risk geographies. We're pleased with the progress we've made. While we will maintain restrictions on property capacity where we can't achieve appropriate risk-reward, we expect to relax many of our rate and non-rate actions in most markets by the end of 2025.

A: Sure, Greg. Thanks for the question. I think, you know, the reason I made the comments around the plans to relax some of our restrictions in property by year-end was just to give you a little bit of a feel for the progress that we're making. As I mentioned, we're pleased with our progress there. And we continue to see progress in our ability to improve profitability and manage volatility in the property line. The other reason I mentioned it is as we've talked about in the past, those property actions have been a headwind to auto production. And so while most of our progress this quarter in auto really was a direct result of our efforts to grow auto, some of the states we've begun to relax have also shown signs of progress in auto growth. So the point there on the property side is we've got a game plan in terms of the places we need to reduce exposure to manage volatility. We've got a game plan in terms of pricing, in terms of conditions we need to make changes to improve profitability. And we're making good progress in executing that plan and most of those actions should be completed by the end of 2025.