Good morning, ladies and gentlemen. Welcome to the first quarter results teleconference for Travelers. [Operator Instructions]. As a reminder, this conference is being recorded on April 21, 2020. At this time, I would like to turn the conference over to Ms. Abbe Goldstein, Senior Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to Travelers' discussion of our first quarter 2020 results. Given the current circumstances, we hope you and your loved ones are safe and healthy. We released our press release, financial supplement and webcast presentation earlier this morning. All of those 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 3 segment Presidents: Greg Toczydlowski of Business Insurance; Tom Kunkel of Bond & Specialty Insurance; and Michael Klein of Personal Insurance. They will discuss the financial results of our business and the current market environment. They will refer to the webcast presentation as they go through prepared remarks and they will take questions -- then we will take questions. Before I turn the call over to Alan, I would like to draw your attention to the explanatory note included at the end of the webcast presentation. Our presentation today includes forward-looking statements. The company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are described under 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. And now I'd like to turn the call over to Alan Schnitzer.

Thank you, Abbe. Good morning, everyone, and thank you for joining us today. The events of the last few months have been challenging for all of us and our hearts go out to all those affected by the global crisis. Before I get to the impacts of the pandemic on our business and comment on our first quarter results, I'd like to acknowledge some acts of courage. First, I want to express our appreciation for the thoughtful actions taken by our leaders and government at all levels to keep us safe and support the well-being of individuals and businesses. Their actions remind us that a society-wide pandemic requires a society-wide response. We would also like to extend our deep gratitude to the courageous efforts of health care professionals and first responders, to their selfless commitment to protecting and saving lives. And for all the essential workers who are putting others first as they continue to fill prescriptions, stock shelves, deliver goods and provide the other key services we all depend upon. Literally and figuratively, they are keeping the lights on, and we're grateful. In addition, I want to acknowledge and thank all of my 30,000 colleagues, many of whom are listening this morning for their exceptional response to this crisis. Employees across Travelers have stepped up in amazing ways to ensure that we can continue to deliver the risk management products and services that our customers need to live their lives and run their businesses as well as the outstanding uninterrupted service that our customers and agent and broker partners have come to expect. Thanks to the commitment and resourcefulness of Travelers' employees and the tremendous efforts of our technology and operations teams, we transitioned our workforce practically overnight to safely and effectively work from home. A few months ago,…

Thank you, Alan. Core income for the first quarter was $676 million, down from $755 million in the prior year quarter, and core ROE was 11.5%, down from 13%. The change in both measures from last year's first quarter resulted primarily from a higher level of catastrophe losses compared to a relatively quiet cat quarter last year. First quarter results also include the adverse impact of COVID-19, which I'll provide more color on in a moment. Our first quarter results include $333 million of pretax cat losses, $140 million higher than last year's first quarter. This quarter's cats include $182 million from the March tornado activity in Nashville. PYD in the current quarter, for which I'll provide more detail shortly, was net favorable $27 million pretax. The underlying combined ratio of 91.3%, which excludes the impacts of cats and PYD, was strong and improved by 0.3 point from the prior year quarter. Our pretax underlying underwriting gain of $594 million was 11% higher than in the prior year quarter, reflecting the volume benefit from higher levels of earned premium in all three business segments, lower levels of non-catastrophe weather losses and an improved loss ratio in personal insurance auto. These benefits were partially offset by the current quarter impact of increases to loss ratios in the commercial businesses recognized during the second, third and fourth quarters of 2019, all of which we discussed in previous calls. And the impacts related to COVID-19, including first quarter loss estimates and increase in the provision for uncollectible receivables and a reduction in our estimate of ultimate audit premiums receivable. The expense ratio of 30% reflects our ongoing focus on productivity and efficiency. The first quarter expense ratio includes nearly 0.5 point of elevated bad debt expense related to the impact of COVID-19. After-tax…

Thanks, Dan. I'll start by echoing Alan's statement expressing our deep appreciation for the efforts of the essential workers who're trying to protect and support individuals and businesses during these trying times. I would also like to acknowledge and thank all my colleagues for their exceptional work. We couldn't be more pleased with the commitment and collaboration we have witnessed among our field organization and distribution partners to continue to deliver the exceptional support our business owner customers have come to expect. While we have many examples, one that I'm proud to highlight is our risk control organization's ability to continue to support new business opportunities, while not always being able to perform on-site assessments. Through the combination of third-party data and remote-enabled technology, we've increased our virtual risk assessments by more than 4.5x from pre-COVID levels. These virtual capabilities have allowed us to continue to support our agents and brokers, while not compromising our risk selection. On to results for the first quarter. Business Insurance produced segment income of $289 million and a combined ratio of 102.2%, both unfavorable to the prior year quarter primarily due to higher catastrophe losses and from the impact of COVID-19. The combined ratio included a 5-point impact from catastrophes, which was higher than we had seen for the quarter, driven particularly by tornado and hail losses from cat 16, which had a heavy mix of commercial losses for us in Nashville, Tennessee. The underlying combined ratio of 97.3% was 2.3 points higher than the prior year quarter, driven by approximately 2 points related to the coronavirus and related economic impacts. Of this amount, about 1.5 point affects the loss ratio and about 0.5 point affects the expense ratio. Turning to the top line. Net written premiums were up 1% over the prior year…

Thanks, Greg. Echoing the earlier comments, I would be remiss if I did not take the opportunity to thank all of those including medical professionals, first responders and all essential workers who, more than anyone, are making it possible for us to continue to serve our customers, agents and communities. A special thanks also to our agents and my Travelers colleagues who have been unrelentingly dedicated throughout the pandemic quarantine. Turning to the quarter, Bond & Specialty delivered another quarter of very strong returns and growth. Segment income was $122 million, a decrease of $16 million from the prior year quarter. The combined and underlying combined ratios remained very strong. The underlying combined ratio of 85.7% increased 4.6 points from the prior year quarter. This increase was driven by the impact of higher loss estimates for management liability coverages, primarily the impact of COVID-19 and related economic conditions. Turning to the top line. Net written premiums were up 13% for the quarter, reflecting growth across all our businesses. In our domestic management liability business, we're pleased that pricing again improved for the third consecutive quarter to a strong 7.5%, while retention remained at a historically high 89%. These production results demonstrate the strong execution of our strategy to improve margins while maintaining strong retention of our high quality portfolio. We will continue to pursue price increases where warranted. Domestic management liability new business for the quarter increased 5% to $58 million. Our domestic surety business posted very strong growth in the quarter, driven by a mix of larger bonded projects as well as a modest increase in construction activity. International also posted very strong growth and significantly improved pricing in the quarter, driven by our U.K. management liability business. So Bond & Specialty results remained strong in the quarter. And while there is clearly the potential for elevated loss activity in certain Bond & Specialty lines and the depth and duration of the associated economic disruption are unknown, we continue to feel great about the disciplined risk management and underwriting integrity that shaped our portfolios, our ongoing strong field execution and our strategic investments in market-leading products and services, and we feel we are well positioned to navigate through this challenging environment and continue to deliver strong returns over time. And now I'll turn it over to Michael to discuss Personal Insurance.

Thank you, Tom, and good morning, everyone. Personal Insurance began 2020 with strong profitability and production. Segment income was $336 million, up 21% compared to the first quarter of 2019. Our combined ratio of 88.2% improved by approximately 2 points, driven by better underlying underwriting results, partially offset by lower net favorable prior year reserve development and higher catastrophe losses. On an underlying basis, the combined ratio was 84%, an improvement of 5 points compared to a strong prior year quarter, with excellent results in both home and auto. The net impact from COVID-19 on segment income was not significant in the quarter. Increases in the allowance for credit losses on premium receivables and higher loss estimates in homeowners and other, primarily from special event coverages for vetting, were offset by favorable impacts on auto loss experience that we began to see in the latter portion of March. Turning to the top line. Net written premium grew 8%, driven by strong growth in domestic results, especially in homeowners. International net written premiums were down 5%, primarily as a result of continued auto profit improvement actions in Canada. Agency Automobile delivered another impressive quarter, with a combined ratio of 89.4%, consistent with the prior year quarter. Underlying results improved relative to the prior year quarter, while favorable net prior year reserve development was lower than last year. The underlying combined ratio of 89.2% improved 2.9 points relative to the prior year quarter, continuing to reflect improvements in frequency levels. Roughly half of the improvement reflects the continuation of the lower claim frequency levels we had already been observing, while the other half is associated with a decrease in miles driven as a result of COVID-19 and related economic conditions. To add some texture to the impacts of COVID-19, data from our…

Thanks, Michael. We're ready to take questions now. Thank you.

[Operator Instructions]. Your first question comes from the line of Michael Phillips with Morgan Stanley.

I think my question is probably for Greg. Look, we see -- if you ex out the COVID, your BI margin was relatively flat in the quarter. Your rates -- renewal rate was still up and accelerated. I guess given -- and we hear you what's happening clearly with exposures in the near term. But I guess, how do you think about how the margin should play out in the near term? I guess specifically, I'm thinking, what are your thoughts on continued ability to push for rate in the near term on your commercial lines business?

Michael, so let me actually start. And if Greg has got anything to add, we'll turn it over to him. So I think for all the reasons that simply all of this have expressed in one form or another, the outlook for margin is uncertain. And I agree with you. Margin for first quarter were actually quite good. From a pricing perspective, I can tell you that we will continue to execute to meet our objectives. And on many lines, that means we will continue to get rate. Now there will be some conversation about what customers can tolerate in times like this. But I can tell you that customers may benefit as exposure declines lead to premium declines. But on those accounts where we need to improve returns, we wouldn't expect premiums to decline as much as exposure will decline. So in that environment, that would lead to an improved price per unit, if you will. So we will continue to execute to meet our target returns. And obviously, we'll see what happens. But we're coming off a pretty good trend. And for all the reasons that are probably apparent, there are a lot of lines out there that continue to need margin improvement.

Okay. I guess let me -- my second question will be more specifically on your commercial auto book. And you did talk on -- there at the -- on personal auto, you see frequency down in the back half of March, about 40% or so. How does that look for your commercial auto book? Any differences relatively kind of personal auto on frequency declines and how that looks?

Michael, this is Greg. Yes, we're obviously watching and monitoring the trends, and it's really early in terms of watching the frequency on the commercial auto book. But Michael and my team and the group of actuaries are spending a lot of time at a geographic level, at a business unit level and calibrating where the frequency is. But it's just too early to really comment on what the frequency would look like for commercial auto at this point.

But we would say, Mike, that it's been down. And I think I shared that in my prepared remarks that it has been done with the exact relationship will be relative to personal auto. That we'll have to see how it plays out.

And Michael, this is Michael Klein. I just wanted to clarify the comment in my prepared remarks was actually about miles driven being down more than 40%, not a frequency number. Certainly, they're correlated, but I just wanted to clarify that the comments were about miles driven.

Your next question comes from the line of Mike Zaremski with Crédit Suisse.

In the prepared remarks, you talked about certain states for workers' comp instituting presumptions of compensability. Could you elaborate? Is this something that Travelers and the industry is accepting? Or is this -- could play out similar to business interruption insurance or certain of these changes could kind of play out in the courts? And I just -- is this expected to negatively impact margins per comp in the near term? And then you -- I think, Alan, you alluded to pricing changing eventually to account for these changes? Any clarity would help.

Yes, sure. Thanks for the question. So I would say, broadly speaking, the answer to your question is it's early, and this is still developing. There are some number of states that have adopted some type of presumption. In many cases, that applies to health care workers and first responders where who might have expected in any event that there would be compensability. In other states, either they have or are talking about extending the scope of the -- essentially compensability to other workers. And so in effect, that would shift the burden of proof to who's got to prove the way the disease was contracted. In terms of exactly how it's going to play out, I think we'll have to see. In some states, the business communities that are thinking about what that's going to do to their premiums are engaging in the debate along with other interested parties. But exactly how it's going to play out, I don't know. I mean if it were to move against us, we would expect that there would be an impact on margins in -- over the near term. And then obviously, that will work its way into rate making over time.

Okay. Great. And lastly, in terms of the surety line, which you guys could provide some helpful color on, could you explain how the force majeure will help out? And is this the main line within the bond and surety segment that you expect to potentially be most impacted? Or are there -- or is it more the management liability side or both?

So thanks, it's Tom. I would say that when you look at the surety lines, construction surety is about 2% of the revenue and commercial surety is about 1/3 of the revenue. So we're going to focus on that bigger piece of construction surety, you asked about force majeure. So we have force majeure clauses, government action clauses, suspension of work clauses. And as a generality, as Alan pointed out in his comments, we think they're going to provide time relief in the event that contractors are delayed. That will be handled on a contract-by-contract basis. But I think the important thing when you look at the construction surety line, is that it's been termed in many, many and even most states to be an essential business. And as such, it's our sense, and again, as Alan pointed out, I think, that the vast majority of contractors are still working. And so if that's the case, you would look at that construction surety business, and you would say that's a healthy sign. And so I think when we consider the surety lines, the other thing is you're going to see just a big difference amongst different carriers. So it's going to depend on how they underwrote their book the last 3 to 5 years and the depth and duration of any slowdown. So I hope that answered your question.

Tom, I think you said 2% construction surety, I think you meant 2/3.

I'm sorry, I did mean 2/3. Yes.

Our next question comes from the line of Ron Bobman with Capital Returns.

And I echo your comments for everyone's well-being. And I never thought I'd look so forward to driving to Windsor to revisit your claims facility at some point in time.

We look forward to having you.

I have two questions. In the premium credit area, sort of the relief that you're providing to auto -- personal auto customers, how are you handling agents commissions on the relief? It was my first question, and I've got an unrelated second question.

Sure. The answer to the question on commissions, this is Michael, is there is no impact to base commissions from the premium relief. So the agent gets paid the full commission on the policy.

And my other question was I made -- I took note of Alan, you're specifying the virus exclusion, and I greatly appreciate that. I just wanted to ask, in the very, very small segment, Simply Business that I think some portion of their volume is written using Travelers paper. Does that virus exclusion have an explicit place there as well?

Yes. We don't actually have a property product on the Simply Business platform. So that wouldn't come into play there.

Your next question comes from the line of Ryan Tunis with Auto Research.

First one just on business interruption for Alan. First, I just wanted to confirm that there's not a substantial subset or any subset of your policies that don't have the virus exclusion?

Yes, Ryan. When you've got a portfolio, the size of ours, we're certainly going to find a pocket here or there that doesn't have that specific exclusion. But I can tell you that, subject to some legislative action that we think would be subject to a constitutional challenge. We really do not think we have a material exposure from business interruption.

And for property in the international book, there's no difference of the wording issue there?

Yes, that's a really good question. There's definitely a difference of the way the wording and the product works outside the United States. I'm not a coverage expert and definitely not the right one to explain the nuances to you. But I can tell you if we get to the same conclusion outside the United States as we do inside the United States, we just do not think we've got a material exposure to business interruption.

Okay. And then my follow-up was just on the workers' comp and the discussion around, I guess, essential employees. You said you don't have much exposure to the frontline workers or health care. I'm curious if you can maybe quantify that a bit. But then thinking about I guess, other subsets that have been deemed essential that aren't necessarily health care first responders. You start thinking about utility workers, food. Any help, I guess, you could give us there on the size of that book in the context of what you're writing?

There's nothing we could really quantify for you. I can tell you, as it relates to health care and first responders from a premium perspective, it's a pretty small percentage of the workers' comp premiums that we have. Then once you start getting outside of that, every state defines essential a little bit different and so it's -- we are -- we will definitely have exposure to essential workers. Then you get into questions of, okay, so what are the infection rates going to be? What are the health care costs, et cetera, et cetera? But there's really nothing -- there's really no number we can give you on an aggregate basis, I think that we have enough confidence to give you or that we think would be helpful.

Your next question comes from the line of Brian Meredith with UBS.

Yes. Alan, I think you've talked about the business interruption pretty well, but just one other, just quick clarification. Do you all provide a virus endorsement to customers at all? And if so, what percentage of your policies would you provide that endorsement?

Yes. So this is across Travelers basis, there are a few number of policies that do have an affirmative virus grant and losses for that would be included in our results for this quarter. So we would have contemplated that in the charge that we took.

Excellent. Great. That's really, really helpful. And then second question, I'm just curious. Do you all -- and this is for Tom, do you all participate at all in the energy surety market? And if so, what are your expectations there?

Well, in our commercial surety business, we do have a modest participation in the surety business. There you see lots of different parts of that market from upstream to mid-stream, the downstream, the service providers, we have some parts of that market that over the years, we have liked better than others. However, I think our approach to the energy market has always been somewhat cautious and while we certainly do have a modest exposure there, we're not out weight in any way, shape or form.

Your next question comes from the line of Elyse Greenspan with Wells Fargo.

So if I take $86 million that you guys called out for COVID in the quarter, and that's around 1.2 points on your combined ratio. And so I guess my question is, that was for 1 month, right, or about 1 month for March. Is the right way to think about it? And I understand you guys don't want to go down the front of giving full guidance. Is the right way to think about it that we would make that -- take that for the full quarter and some kind of math of times 3 or some assumption of how long you think the COVID impact will last within the industry?

Elyse, it's Dan Frey. I'll try to take that. I think that would be very difficult to do for a couple of reasons. One is part of the charge, as we explained in my commentary, relates to bad debt provision for billing relief and billing relief, we expect to occur for a finite period of time. That's going to be based on what we've already announced voluntarily and in some cases, what states are asking us to do. But right now, that's pretty boxed. And so we think that we would have most of that inside what we've seen so far. So far, I'd say there could be more of that in the second quarter, but I certainly wouldn't take that number times 12. Unless, of course, this becomes a prolonged and deep situation in which that situation has to continue on a go-forward basis. I think, similarly, some of the losses that we've talked about, as Tom just talked about, we tried to make -- as Alan just talked about, sorry, we try to make an assessment of where we think we do have some potential exposure outside the U.S. and try to be fully responsive in that regard. So it would be -- I think too early to, one, to make a conclusion. And two, I would counsel, I think, against that approach.

Okay. That's helpful. And then my second question on, in the 10-Q, you guys had called out some prior year adjustments within Business Insurance, I believe, for the fourth quarter of last year. Is it possible to quantify that? And what lines that stem from? It seems like it was offset by other kind of development pushes and pulls.

I'm not sure what the question is, Elyse. Could you give me some help on specifically what you're talking about?

I thought I saw a comment in the 10-Q in relation to Business Insurance, where you guys had called out some adverse development for the -- later in the 2019 accident year. Was there any kind of true-ups or adverse development taken on some of the longer tail lines, whether commercial auto or general liability related to accident year 2019 within just Business Insurance?

Yes. So if it's in the commentary in the MD&A around the change in the underlying combined ratio in Business Insurance, we do have the impact of the changes in the liability lines that we reported in the second, third and fourth quarters of last year and disclosed in last year's quarter. Now when you look at those, they carry forward and have an impact on the first quarter of this year. It was not included in the first quarter of last year. So that's the delta we're trying to explain there.

But Elyse, if you're -- you may be asking about prior year development. I think that's what you said. But Elyse, maybe we can take this off-line. I think we're a little confused about the question.

And we have time for one more question coming from the line of Jimmy Bhullar with JPMorgan.

So I had a question first just on workers' comp again. Can you talk -- you mentioned your views on business interruption, just your views on the legality of claims in some cases. But can you talk about submission activity for the line? And how many claims you're seeing filed versus what you'd normally see file in a normal quarter, just to get an idea on how much litigation there could be in this line.

When you say submission, you mean claim submissions? Is that what you're talking about?

Yes. Yes. Yes. So whether or not the...

Yes. Broadly speaking, workers' compensation claim frequency would be down. Our -- I probably wouldn't want to quantify that because I'm not sure we'd want to say what we've seen in a couple of weeks is necessarily going to translate to what we're going to see for a full quarter. But across many of our lines of business, we've seen frequency -- claim frequency down. I'm not sure that necessarily translates into litigation risk, however, if that's the point that you're trying to make.

Sorry, on business interruption, I might have said workers' comp, but business interruption.

Business interruption, I'm sorry. There's definitely been some claim activity, the -- and essentially everyone, where I'd say the vast majority of them, we declined it because we've got the exclusion or other provisions that apply. So I don't -- I actually don't even know what the precise number is. But the vast majority, we declined the claim consistent with the policy terms.

And then how does your reinsurance cost coverage work in the sense that if you are -- if you end up losing some cases in court on business interruption, is your reinsurance plan going to cover you regardless of whether you have losses or not? Or the language is such that your primary losses or losses on the primary side will not be covered by reinsurance because those contracts have specific virus clauses as well?

Yes. It's always a mistake, I think, to give claim advice on either side of the insurance policy without specific facts and circumstances and looking at the policy language. But to be responsive to your question, I will say that follow-the-fortunes doctrine is alive and well and reflected in our reinsurance treaties generally. That being said, if there is legislative action that essentially overturns contract certainty, and we end up in constitutional challenges, et cetera, then we're in a new world, and I'm not sure what happens to reinsurance in that situation.

And there are no further questions at this time. I will turn the call back over to Abbe for closing remarks.

Thank you very much for joining us this morning. And for those left in the queue and anyone else that has questions, of course, as always, please feel free to follow-up with Investor Relations. Be well and thank you.

This concludes today's conference call. You may now disconnect.