Good morning and thank you for holding. Welcome to the Fourth Quarter Results Teleconference for Travelers. [Operator Instructions] As a reminder, this conference is being recorded on January 21, 2021. At this time, I would now like to turn the conference over to Ms. Abbe Goldstein, Senior Vice President of Investor Relations. Ms. Goldstein, you may begin.

Thank you so much. Good morning and welcome to Travelers discussion of our fourth quarter 2020 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; 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 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 supplements and other materials available in the Investors section on our website. And now, I would like to turn the call over to Alan Schnitzer.

Thank you, Abbe. Good morning, everyone and thanks for joining us today. Before I address our fourth quarter and full year results a quick comment on current affairs. Yesterday, we witnessed the most American of events, the peaceful transfer of power from one democratically elected administration to the next. It’s not a political statement, but a patriotic one to say that we want to see this next administration succeed. We have significant challenges to overcome, a pandemic threatening the health and safety of our loved ones and neighbors, a distressed economy imperilling the lives and livelihoods of millions, and a deeply divided society, which undermines our collective sense of security and well-being. Let’s hope yesterday marks the beginning of our political leaders on both sides of the aisle taking a constructive approach to addressing these challenges. And with that, I will turn to results. I am pleased to report a very strong finish to the year with fourth quarter core income of $1.3 billion or $4.91 per diluted share and core return on equity of 20.5%, each up meaningfully from the prior year quarter. We are also pleased to report full year core income of $2.7 billion, generating core return on equity of 11.3%, a substantial margin of the risk-free rate and our cost of equity. Our ability to deliver these results in the face of an historic pandemic, a record high number of PCS catastrophe events and record low interest rates is a testament to the strength of our franchise. More specifically, to our talented and committed workforce, the value of our hard to replicate competitive advantages and our expertise in balancing risk and reward to achieve industry-leading returns over time. The principal driver of the higher level of core income for the quarter was very strong underlying underwriting…

Thank you, Alan. Core income for the fourth quarter was $1.262 billion, up from $867 million in the prior year quarter and core ROE was 20.5%, up from 14.8%. Improvement in both measures was the result of very strong underlying underwriting results. Our fourth quarter results include $29 million of pre-tax cat losses compared to $85 million of pre-tax cat losses in last year’s fourth quarter. Recall that last year’s fourth quarter cat losses included a $101 million benefit from recoveries under the underlying Aggregate Cat Treaty, whereas in 2020, we exhausted the Cat Treaty in the third quarter. So, there were no recoveries under the treaty in this year’s fourth quarter. This quarter’s cat results include about $40 million of favorable development in our loss estimates for events that occurred earlier in the year. PYD in the current quarter, for which I will provide more details shortly, was net favorable $180 million pre-tax. The underlying combined ratio of 88.7% which excludes the impacts of cats and PYD improved by 3.4 points from the prior year quarter. Our pre-tax underlying underwriting gain of $804 million increased by nearly 50% over the prior year quarter, reflecting the benefit of higher levels of earned premium and higher margins, driven by earned pricing that exceeded loss cost trend and continued favorability in personal auto loss experience. For the quarter, losses directly related to COVID-19, totaled a modest $31 million pre-tax, split about evenly between Business Insurance and Bond & Specialty Insurance. More than offsetting those losses were lower levels of auto claims in both Personal Insurance and Business Insurance. The net impact of the COVID environment on the consolidated underlying combined ratio amounted to a benefit of about 2.5 points, mostly in Personal Insurance. We continue to take a cautious approach in estimating…

Thanks, Dan. For the fourth quarter, Business Insurance produced $713 million of segment income, an increase of almost 60% over the fourth quarter of 2019. Higher net favorable prior year reserve development, underlying underwriting income and net investment income as well as lower cat losses, all contributed to the favorable year-over-year increase. We are pleased with the underlying combined ratio of 93.6%, which improved by 2.8 points from the prior year quarter. We benefited again from earned pricing that exceeded loss trend with an impact this quarter of a little more than a point and a half. There is also a point and a half of improvement due to the favorable comparison to the fourth quarter of 2019, which was elevated due to the re-estimation of losses for prior quarters. Turning to the top line, in light of the ongoing macroeconomic challenges, we remain pleased with the resilience of our business. Net written premiums were only slightly lower than the prior year quarter with strong rate and high retentions mostly offsetting modestly lower levels of insured exposures as well as lower new business. The lower insured exposures reflect lower levels of economic activity as well as impacts from our active management of terms and conditions and deal structures, including deductibles, attachment points and limits. Turning to domestic production, we achieved a record renewal rate change of 8.4%, up almost 4 points from the fourth quarter of last year, while retention remained high at 83%. This quarter marks the eighth consecutive quarter and with renewal rate change was higher than the corresponding prior year quarter. We continue to achieve higher rate levels broadly across our book as rate increases in all lines other than workers’ compensation were meaningfully higher during the quarter as compared to the prior year. Importantly, we continue…

Thanks, Greg. Bond & Specialty delivered strong returns and double-digit growth in the quarter despite the ongoing headwinds of COVID-19. Segment income was $164 million, nearly flat with the prior year quarter as the benefit of higher business volumes and a higher level of net favorable prior year reserve development were offset by an underlying combined ratio, which while still strong at 85%, was higher than the prior year quarter, the underlying combined ratio of 3.7 points driven by the impact of higher loss estimates for management liability coverages, primarily losses attributable to COVID-19 related economic conditions. As we discussed last quarter, the products that we write in this segment are susceptible to elevated loss levels in times of severe economic downturn. We experienced that during the financial crisis, and again, in recent quarters due to the impacts of the pandemic. Nonetheless, with the strong rate levels we’re achieving, we expect that the underlying combined ratio in 2021 will improve a little bit from the roughly 87% in the second half of 2020. Turning to top line, net written premiums grew an outstanding 12% in the quarter, reflecting continued improved pricing in our management liability business with nearly flat Surety production despite the continued economic impact of COVID-19 on public project procurement and related bond demand. In our domestic management liability business, we’re pleased that renewal premium change increased to a record 10.9%, driven by record high renewal rate change, while retention of 89% remained near historical highs. These production results demonstrate the successful execution of our strategy to pursue rate in light of elevated loss activity, while maintaining strong retention levels in our high quality portfolio. We will continue to pursue rate increases where warranted. Domestic management liability new business for the quarter increased $13 million, primarily reflecting our thoughtful underwriting in this elevated risk environment. Consistent with last quarter, submissions are up, while quote activity is down. So, Bond & Specialty results were again strong despite the challenges brought on by COVID-19. Beyond the numbers, notwithstanding our focus on managing through the challenging environment, we continued to invest in differentiating our businesses in the eyes of our customers and agents and broker partners, while positioning ourselves for continued profitability and competitiveness in the future. Some highlights from 2020 include, continuing investments in our surety business to help our contractor clients more effectively manage risk, while providing insights that will enable them to more profitably manage their business, piloting digital platforms that will improve the speed and convenience of accessing management liability and small surety products for our agents and brokers and investing in a new sales management platform that will enhance productivity, optimize workflow management and increase sales. Lastly, I’d like to thank our employees and distribution partners for their commitment to creatively and effectively addressing the needs of our customers in these most unusual times. And now, I will turn it over to Michael to discuss Personal Insurance.

Thanks, Tom and good morning, everyone. In Personal Insurance, we are very pleased with our fourth quarter and full year results. For the fourth quarter, segment income increased to $457 million and our combined ratio improved to 84.1%. Full year’s segment income was $1.2 billion and the combined ratio was 89.7%. The significant improvement for both periods compared to the prior year is primarily driven by lower frequency of automobile losses as well as the benefit to underwriting income from higher business volumes. In addition, the full year results include higher net favorable prior year reserve development and elevated catastrophe losses. Net written premium growth for the fourth quarter and full year was 7% and 5% respectively with continued strong retention and higher levels of new business, resulting in record net written premiums of more than $11.3 billion for the year. Agency Automobile profitability was very strong with a combined ratio of 86.5% for the fourth quarter. The underlying combined ratio for the quarter improved 12 points, continuing to reflect favorable frequency levels. Approximately one-third of the improvement in the quarter is from favorable reestimates of activity for prior quarters in 2020. We continue to observe lower claim frequency as a result of fewer miles driven, reflecting the ongoing impact from the pandemic. We will continue to analyze and incorporate current trends into our state-specific underwriting and pricing decisions as we balance business volumes and profitability. In Agency Homeowners & Other, the fourth quarter combined ratio of 81.9% increased relative to the prior year quarter, driven by a higher underlying combined ratio and an increase in catastrophe losses. The fourth quarter included one catastrophe, Hurricane Zeta, with no recoveries from the Catastrophe Aggregate Reinsurance Treaty. The underlying combined ratio of 78.5% was 5 points higher than the prior year quarter…

Michael, this is Tom Kunkel. I just want to jump in quickly and mention that I did misspeak when I was discussing management liability new business. I believe I said it increased by $13 million and it actually decreased by $13 million.

Thanks, Tom. Thank you. And operator, we are now ready to turn to questions.

Certainly. [Operator Instructions] Our first question comes from the line of Michael Phillips with Morgan Stanley. Your line is open. Michael Phillips with Morgan Stanley, your line is open.

Yes, hi, everybody. Can you hear me?

We can. Good morning.

Good morning. Thanks. I have had a choppy connection. So I apologize if you couldn’t hear me. Congrats on the quarter. I guess I will start on Business Insurance, we are seeing nice, nice improvement still in the core margins, a bit of a slowdown, I guess in the renewal rate change, still strong, it’s your highest you said in quite a while, but a bit of a slowdown from prior quarter. I guess any reason to think and I think Alan, you said again, I am sorry, I was a bit choppy. I think you said you expect rates to continue to move up if I heard you correctly. I guess given the margin improvement and what I have seen is a bit of a slowdown in the renewal rate change, is there any reason to not think we are close if not already at a peak in pricing for Business Insurance?

Michael, we are at record levels and we are compounding on compounding, so it’s hard to look at this execution and find any negative in that. And from here, the outlook is positive also on the historical numbers the segmentation is really important and I think the point Greg made in his prepared remarks up about the benefit of the tightening terms and conditions and other numbers, so all that’s really important. And from here, I think this plays out for a while and it’s a function of rate adequacy. All the drivers are environmental. So, primarily loss activity think about social inflation, think about weathers, think about wildfires, if you got the interest rates that appear to be lower for longer costs and availability of reinsurance, pandemic losses impacting the industry and I suspect for some markets, maybe so reckoning with social inflation. So, I expect that as the favorable rate environment to continue and to persist at levels that will result in expanding margins for a while.

Okay, thank you very much for that. And then second question I guess, Greg, you mentioned I apologize also a little bit choppy, but you mentioned comp and pricing there on comp what we are hearing from external sources and a lot of the market’s results that it’s bit of a inflection in comp pricing and not much, but a bit of a turn at least. I guess, what are you seeing in comp? Your PYD there was strong. Loss trend seems to be pretty favorable there. So maybe comment on if you are seeing a bit of a turn in pricing and comp kind of what’s driving that and should we expect that to last given the lowest transits you would be pretty favorable there as well? Thanks.

Yes. Good morning, Michael. This is Greg. Yes, we continue to think we are at or near a bottom in workers’ comp and the evidence that we will get as the bureau loss cost recommendations and our own rate structure. And so yes, we continue to believe that and I’ll just remind you that we are an account solution and we feel terrific about our entire book of business. Workers’ comp is usually just one of the many solutions that we are offering our customers, but yes, we continue to believe we are at or near the bottom.

Okay, great. Thank you, Greg.

Your next question comes from the line of Ryan Tunis with Autonomous. Your line is open.

Hey, thanks. Good morning. Just a question for Alan, I guess I haven’t seen the 4Q numbers, but through the third quarter, you had really substantial increases in IBNR and economically exposed lines, like commercial auto and GL. So obviously, reported claims have been slow to come in relative to your picks. I guess I am curious what you are learning as courts reopen and things like that. Is that starting – is that still starting to look conservative or are you seeing a higher pace of reported claims that would support those initial loss estimates?

You are right, I think the best way I can explain it is obviously going back a few years, we saw some elevated loss activity. We responded to that over a couple of quarters. And I would say that more recently, we have been sticking to that higher level. And what we are seeing in the data frankly might be a little bit favorable to what we would have expected, but we are not responding to that, because you think there is some disruption in the data and so for now we are going to stick with our view of the longer term trends. Is that responsive?

Yes, that’s helpful. And then I guess for Greg, just looking at the growth in Business Insurance similar to last quarter, but look like some of the KPIs look better exposure was a little bit better sequentially and even new business wasn’t down quite as much. It looked like a lot of that was workers’ comp. I am just trying to think about how are we trending into 2021 based on what you are seeing relative to the negative 3% that we posted during the fourth quarter?

Yes, as you said, Ryan, we have seen improvement with exposure. As the economy starts picking up we have shared with you for some time now that we do believe we are highly correlated with the overall GDP in terms of the GL workers’ comp, the ratable products that follow payrolls and sales receipts of that sort. And so as that starts picking up, we we believe we will see some as we are starting to see in our book already, some improvements in our production, specifically through the exposure metric.

I will just add to that, Ryan that our book is – Greg’s point is exactly right. There is a correlation there. But I just think given the high quality of accounts and business that we write we have actually done a little bit better than even we might have thought related to relevant – relative to economic activity.

Thanks.

Thank you.

Your next question comes from the line of Tracy Dolin-Benguigui with Barclays Research. Your line is open.

Thank you. Good morning. In the tort liability arms race who is ahead, pricing or loss trend, I guess I’m mindful that the economic slowdown just means less court activity?

Tracy, it’s Dan. You broke up a little bit at the beginning of the question. Do you mind repeating it?

Absolutely. Apologize for that. I am just thinking about the tort liability arms race. We think about it in a race who maybe ahead pricing or loss trend. I guess I’m mindful that given the economic slowdown, there is less court activity?

Yes. So, I remember Tracy, when we talked about loss trend in BI that’s all in and that’s including our more recent views over the last couple of years of elevated loss environment for things like social inflation. And so when we are looking at – and now earned rate numbers that are coming through Business Insurance, that’s clearly ahead of loss trend. I think to your second point, where we are looking at the data as it comes in now and not assuming that that’s the new normal, we are assuming that what we are seeing is slower levels of claim payments that won’t necessarily ultimately be lower levels of claim payments. So we have stuck with our more normal long-term view that we think those lost costs are higher, but having said that, where rates are now we think rates ahead of lost trends.

Okay, excellent. And then from my follow-up Greg was talking about improvement in terms and conditions, I am wondering if you could just unpack that maybe give an example like I have heard on the reinsurance side, they have been a little bit tighter on silent cyber. And I don’t know if Tom had any views for our management liability?

Yes, sure, Tracy. Just to give you a sense, you have two different dynamics between the property and the casualty wise. Property, you have a lot more opportunity on terms and conditions, I think deductibles insured the value margin clause language changes that help improve the margins for us and provide some coinsurance back to the customer. In terms of – I reference the term deal structure you can think of that more on the casualty side. And so umbrella, attachment points are increasing in women’s management making sure that we are putting very thoughtful capacity around the limits that we offer. So, that’s some of the activity that we are doing across the portfolio.

And Tracy, just to – in BI, just to give you a specific example, because you asked for that, we do think about we do add, for example, communicable disease exclusions in, you know, industries and segments and customers where we think that’s important to do so, Tom?

And the way it looks really in the management liability businesses is the focus has been largely on pricing, but certainly a lot of work on deductible, self-insured retentions and limits coming down in a number of cases. And if we are really going to see a change of policy terms in the near future, cyber would certainly be the most likely place where that would occur in the short-term.

Thank you.

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

Hi, thanks. Good morning. My first question was on the Business Insurance margin, you guys said as we have 150 basis points on just a rate exceeding trend in the quarter. Was there anything else like one offset to that within the margin? And then could you give us a sense of the net, sorry if I missed it, the net COVID benefit, including the frequency impact within BI in the quarter?

Yes, Elyse, it’s Dan. I will take that. So, price versus trend, I think Greg’s comments was a little more than a 1.5 point, so think about that as being between a 1.5 and 2 points. The other thing that Greg called out, which we would say in terms of the comparison might be a little unusual remember, in last year’s fourth quarter, we told you we took about a 1.5 point of sort of prior quarter catch up as we adjusted our view of the liability loss ratios last year. So that impacted the year-over-year comparison as well. To the COVID question, very modest as it was last quarter, so not really big enough to mention a small favorable, but think about that in the 10s of points, which is why it didn’t get attention in the scripts.

Okay, that’s helpful. And then my second question is on the expense ratio side, I think last quarter you guys have pointed to kind of seeing like around 30s like a good run-rate. But you continue to come in better than that and especially within Business Insurance and expense ratio continued to improve this quarter like it did last quarter. Is there something related to COVID expenses or as kind of expense ratio bogey was down a little bit when we think about where you guys could come in on a go forward basis?

Yes, Elyse, COVID has had some pluses and minuses on the expense side. On the one hand, there have been some higher provisions for things like bad debt, but there have been savings in things like travel and expenses. When you step back and look at the full year and on a consolidated basis, I am not at all surprised where we were I think coming out of last year, we said we would be happy with something around the 30, the full year this is at 29.9, I said again, in my comments, we are probably pretty comfortable at this level. So, I think we have settled and we are probably going to say on what we are thinking about expense ratio.

Okay, thank you for the color.

Thanks, Elyse.

Your next question comes from the line of Jimmy Bhullar with JPMorgan. Your line is open.

Hi, good morning. So, I had a question first on just your views on business interruption exposure and it seems like it is sort of trending in the favor of the insurance industry so far at least in the U.S., but what your view is in terms of your exposure and whether the FCA decision makes you reassess your exposure in Europe?

Good morning. Our view on business interruption exposure for us remains unchanged. There is nothing in that FCA decision in Europe that causes to think any differently about our exposure or the reserves that we’ve put up for it. More recently, there was a decision earlier this week in Ohio related to another insurance company that was adverse to that company. And generally speaking, we prefer not to comment on pending litigation whether it’s ours or anyone else’s, but since you asked a question, I would just point out that our standard policy language is different from the language issue in that case in some very key respects. And so in Ohio and elsewhere, we remain very confident in our policy language and feel no differently about our business interruption exposure. And I guess I would just caution everybody to keep in mind that over the last few months and across the country, the vast majority of these cases have been in the favor of insurers.

Okay. And then secondly just what are your views on pricing in commercial auto, obviously, recently, litigation activities declined a lot, but do you think prices have caught up to lost costs, it’s sort of social inflation litigation go back once the virus sort of abates?

Jimmy, there is just not much more competitively sensitive than our pricing strategy. So, I think we are going to probably stay away from where pricing is going by line. But I will just reiterate what we said before, which is we think this is a favorable pricing environment that that’s going to play out for a while and it’s a function of rate adequacy and there still is a rate need in commercial auto. So, to one degree or another, we will continue to I think benefit from the rate environment in commercial auto.

Okay, thanks.

Thank you.

Our next question comes from the line of Mike Zaremski with Credit Suisse. Your line is open.

Hey, good morning. Thanks. First question, I am thinking about top line versus kind of buybacks. I recall a number of pre-COVID, you guys kind of talked about given top line was picking up just you wanted to make sure we understood that buyback levels might not resume at the same ratios as in the past. Kind of trying to think through the dynamics going forward, earnings are healthy and improving, but the top line is still, the outlook, I am not going to put words in your mouth, that seems maybe still to be a little weak due to the economy. So, should we be thinking that there might be more room for buybacks in the near-term?

Hey, Mike, it’s Dan. I think just thinking about the right dynamics, I don’t know that this necessarily leads you to conclusion about what we are going to do in the near-term. And again, we are going to think about this over a longer period of time, to the degree that, as Alan commented, we have experienced and been able to generate more top line growth in recent years than we had historically, the current COVID environment sort of notwithstanding, that’s something that we look to do on a go forward basis. And even this year plus 3%, when you adjust for the personal insurance auto refunds that we made, the comments that we made a year or so ago would still hold true, I think to the degree that the top line grows, that’s going to require us to hold more capital, because everything that requires capital grows with it, reserve balances grow, your investment portfolio grows. And the only point we were really trying to make when we made those comments a year or so ago was don’t think about us perpetually being able to return 100% of earnings in the form of dividends and buybacks. We are going to have to hold some of that for growth. So that would still be true, the amount by which we would have had to increase capital this year might be slightly less than we would have expected coming into the year, because COVID had a little bit of a dampening effect on the top line, but directionally all those same things would still hold true.

Okay, understood. That’s helpful. And lastly, shifting to workers’ comp specifically, I guess, some firms have talked about and it sounds like you guys too are – talked about less claim frequencies during the pandemic, but still kind of holding you said to like broadly in the BI segment kind of still holding your picks conservatively. Historically, have you seen kind of a -- more of a catch up or later claims filings in workers’ comp, maybe after previous recessionary periods? Is that dynamic you guys are contemplating?

Yes. Let me just give you a little bit of color on how we see or thinking about the workers’ comp loss activity. So, first of all, the, the COVID related claim rate is relatively low relative to the infection rate and lower than we might have expected. And the severity on COVID related workers’ comp is also coming in a little better than we had thought. There is – there continues to be some benefit from non-COVID related frequency as people are working from home, but there still is in our minds a degree of uncertainty to your point about how COVID related workers’ comp claims are going to play out over time. So we have been pretty cautious in the way that we have been looking for workers’ comp losses to make sure that we don’t get surprised by that. Now, historically, putting COVID aside historically, in a recession, you get sort of offsetting forces in workers’ comp, you got people who want to stay on the job. So, they are less inclined to go out and so frequency is down a little bit. But severity goes up a little bit, because once people go out, they tend to stay out longer on workers’ comp, but historically for us in recessionary periods, the net of those two things have been a little bit of a positive. You mean every circumstance is different and so hard to know for sure, but that’s generally what we have seen in the past. And so, I think that’s sort of the landscape as we see it on workers’ comp loss activity.

And Alan that will follow-up to a follow-up with just you, I was kind of trying to allude to okay, I figure out post-recession, did you see a kind of a jump or any kind of spike in frequency? I appreciate the comments about during the recession there was a net benefit, just curious if there was kind of a catch up sort of a post-recession?

I just don’t have that data in front of me from prior recessions. And so I am a little hesitant to shoot from the hip. I am just not sure. I mean, as we are looking around the room at each other, I don’t think there is anything that we think would be all that particularly significant, but again, I just don’t have the data in front of me to be responsive to that.

Thank you.

Thank you.

David Motemaden with Evercore, your line is open.

Hi, thanks. Good morning. I guess just another question on the Business Insurance underlying loss ratio and that’s 150 basis points of core improvement now in 4Q that’s improved, I think last quarter, you said it improved 100 basis points year-over-year. I guess as we think about obviously rate earning in above the 5% loss trend. Is there any reason to think that, that shouldn’t continue to accelerate as we head into 2021?

Hey, it’s Dan. All else being equal, no, you have seen mathematically, I think what you have seen in the last couple of quarters is what you would have expected to see based on the comments that we started making a year ago when we felt that we were reaching the point where rate was reaching or exceeding loss trend and then that would start to come through on an earned basis to the extent that written pricing has continued to increase. We would expect the earned impact of that to continue to increase on a lagging basis. Again, all else being equal and rarely is all else equal but looking at those two things, yes.

Right. Okay, thanks. I appreciate that, Dan. And I guess Greg just a question on exposure growth and specifically, you had mentioned the dampening impact of terms and conditions and then the impact that, that had on exposure growth. I guess maybe, is there any way to quantify that? And maybe as we think about heading into 2021, any sort of view in terms of how this may impact terms and conditions may dampen exposure growth as we enter into 2021?

Hey, David. It’s Greg. Yes, that’s just competitively sensitive. So, we give you exposure overall, we give you rate, we give you our PC, but we really don’t breakdown exposure in terms of the insured exposure versus deal structure and terms and conditions. So that’s just something we don’t provide.

Okay, that’s fair. Thank you.

Thank you.

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

Hey, thanks. The first one, Greg, just on the Select business, if I take a look at the retention rates dropped pretty meaningfully from the second quarter. I guess my question there is that due to just the economy and the impact that’s having on small businesses or is it that you are kind of pushing rate terms and conditions here and that’s having an effect on your retentions and at what point do you need to layoff maybe a little bit to kind of get that retention ratio back up?

Yes, good morning, Brian. Yes, it really is a combination of both our profit improvement initiatives, which isn’t just for Select, as we have been sharing, that’s across the entire BI portfolio. But when we look at the uptick in rate and the offset in retention, our product managers and underwriters can see the variance of the loss ratios versus what we retained and what we – what lapse that we feel very comfortable with the tradeoff between those two. So we are going to continue to improve the margins on that Select business. And then in terms of your comment on the pandemic, we have certainly seen since the pandemic, the Select business has felt the flow, the most reduction with the pandemic on smaller businesses. And so new business has absolutely felt that, but we feel great about the quality of the new business that we are writing in the Select business right now.

And if I just…

That could affect your retention too, couldn’t it?

Sure. You sure could, yes.

Brian, just to put a finer point on Greg’s comment which I agree with, we have been at these types of retention levels before in Select. So, this isn’t an unusual place for us to be and I guess you are all looking at headline numbers we are looking at a very granular set of data underneath that shows us exactly what the execution is in terms of rate retention loss ratios. So, we feel very, very good about this execution.

Great. And then my follow-up here, Alan, how are you all thinking about potential liability exposures to back to work plans as eventually the economy reopens? And do you have protections in some of your policies to maybe mitigate some of that exposure and what are your thoughts on that?

Yes, it’s a great question. I am glad you asked. We would have hoped that there would have been some federal liability protection, I just think given the way things have played out that’s probably less likely to happen. But there are a couple of things that still help one, there have been a number of states, I think more than 30 states that in one form or another have taken some kind of action to provide some COVID liability protection. At the federal level, we have got a more right leaning bench today than we did 4 years ago, certainly. So, that helps a little bit. And then we can address it through things like rate and risk control and risk selection. And as I mentioned before, in some industry classes, we have started to put in communicable disease exclusions where we think that could be important. So we are – it’s an exposure, it’s out there. I think it’s unfortunate, because I think it’s the plaintiff’s bar that benefits at the expense of economic recovery, but we will manage to it just fine.

Great. Thank you.

Thank you.

Our next question comes from the line of Josh Shanker with Bank of America. Your line is open.

Thank you. I wanted to [Technical Difficulty]

Hey, Josh. We can’t hear you at all.

Okay. [Technical Difficulty]

Hey, Josh, are you there? Why don’t we take the next caller – Josh, yes, go ahead.

Sorry about that. I guess those headphones don’t work that I was trying to use, okay, the $0.50 solution. Anyway, I was an area that we doesn’t really get enough attention to national accounts, because we all talk about Business Insurance ex-national accounts. Can we talk about the – what is the trend there in terms of premium? How much of the falloff in that area do you think is temporary how much comes back? What’s the distribution of that business in terms of premium volume to think about as we get to the end of COVID, I guess?

Hey, Josh. This is Greg. Yes, national accounts was down 5% for the year and that’s a business where a couple of large accounts can make up a quarter or a year and that was the case for us in 2020 where we just had more loss larger accounts than new and we felt that on the top line. Now, as you said, that it’s an important part of our portfolio where we are encouraged around the national accounts. And we have recently re-launched a service entry for claims service and we continue to invest in it and it’s an important part of our portfolio.

And to the extent in terms of the accounting for that, I think there is a lot of audit accounting. Are we still in the audit accounting phase for that and now we are earning through and as the economy picks up, we will see audit accounting go the other direction, how should we expect that to trend?

Josh, it’s Dan, I am not quite sure I understand your question, but to the degree that, a lot of our Business Insurance accounts are subject to audit, including some business and national accounts. Generally speaking, in this year, we have seen a lower level of audit premium additions not surprisingly given the lower level of overall economic activity. I don’t have the data in front of me I don’t know that we have heard anything that’s particularly different in the national accounts front than say in middle market. So I think broadly speaking, we have seen audit premium activity behave probably not surprisingly in response to what you are seeing in the more general economy.

Yes, I guess I will stop, but are we more or less through that audit account period by 4Q or it was a bigger issue in 2Q and 3Q and now the sort of premium submissions are in line with the exposures or are we still at a period of time where we are seeing that headwind comes through on your premium numbers due to weaker audit accounts?

Yes. And I would be careful about thinking headwind in terms of year-over-year there is less audit premium than there was last year. We haven’t yet reached the point where in aggregate audit premiums have turned negative, they are just lower, positive. So, it impacts the growth rate year-over-year. And to your point, it will continue for a while because in many cases, you are doing audits, 15 months after the policy terms were set in the first place. And so there is still a while to work through the COVID impact on policies that haven’t yet reached that maturity level.

Alright. Well, thank you. I probably have some more questions, but I’ll take them offline. Thank you very much.

Thanks, Josh.

Your next question comes from the line of Meyer Shields with KBW. Your line is open.

Great. Thanks. So, one quick question on personal insurance and then a follow-up on Business Insurance, Michael, are you pricing auto for normalized driving or are you trying to adjust pricing for sort of the short-term but fluctuating driving behavior that we are seeing during COVID?

Sure, Josh. Yes, this is Michael. I would say that we are as I mentioned sort of continuously adjusting pricing levels to reflect our outlook and again, driving levels have continued to be depressed. Therefore, frequency levels have continued to be depressed. And our view is that in 2021 that will start to normalize, but we think we are going to be at depressed driving in frequency levels for a period of time. And so we are factoring that into our pricing. And as I mentioned last quarter, we filed a handful of decreases in about 5 states in the fourth quarter and we have some more plan in the first part of 2021, again, to respond to that better than long-term, normalized loss experience.

Okay, that’s helpful. And then I guess a follow-up for Greg, I am wondering whether it’s fair to say that maybe Business Insurance results were better than they look, because presumably there was some headwinds from the exposure that acts like trend and because also presumably workers’ compensation represented a smaller percentage of earned premiums and I was hoping you can comment on those two factors?

Hey, Meyer, it’s Dan. So, mix will contribute as you suggest right in the degree that there are different loss ratios in different parts of the book are growing at different paces, that’s going to have an impact. I will jump in here on this one, because on the exposure front, we have said when exposure is positive that a portion of exposure behaves like rate and therefore can be helpful to margins. It’s not necessarily the case that when exposures are modestly negative as they are here that the same holds true on the inverse. Here, what you are seeing is generally lower levels of insured exposures, fewer employees, lower levels of cash register sales, things that drives GL type exposure, unless you actually got to the point where say there was wage deflation and the price per risk was going down, but you don’t at least at this point have the same kind of adverse impact on margins from negative exposures that you do help to margins when exposures are running positive.

Okay, fantastic. Thank you.

Your next question comes from the line of Paul Newsome with Piper Sandler. Your line is open.

Good morning and congratulations on the quarter, quite remarkable. Greg, you made a comment about a higher proportion of distressed business in the market. And I just want to make sure I was interpreting the comment correctly, are you talking about essentially more of a business going into excess and surplus lines or are you thinking more along the lines of just the businesses themselves are struggling with the economy?

Paul, let me just jump in. And I will let Greg fix whenever I get wrong. But I think neither actually, what in a market like this where in some cases, you got some capacity issues where you got firming rate distribution generally is solving problems in the market and so the accounts that end up in the market for trading are just more difficult risks to write. So, it’s not that it’s necessarily moving to E&S and it’s not their business is necessarily with economic issues, these are just difficult from an insurance risk perspective.

Okay. And then just quickly investment income is also very, very strong I thought, anything in there we have been so focused on the underwriting, anything in there that we should consider this as a good run-rate or is there anything we should just be taking note of all the investment income results?

Hey, Paul, it’s Dan. So, I guess I point you to the net investment income slide in the webcast presentation and I’d point you to Page 6. So, we gave you some outlook in terms of what we think the run-rate looks like for the fixed income portfolio. The variability that we have seen in the last three quarters has really been in the non-fixed income portfolio. And so if you look at the bottom right hand quadrant of that chart, it shows non-fixed income over the last eight quarters or so. And what you could see is sort of pre-COVID that was the last three quarters, pre-COVID had been $70 million or so of non-fixed income, then you see a big dip in the second quarter. And remember, at that time we talked about that was the impact of the disruption to the equity markets that happened in the first quarter coming through our results on a lagging basis in Q2. And then as markets have come back, we have seen some of that rebound to come through our numbers. And so what you see in Q3 and Q4 are very strong results in the non-fixed income portfolio. But if you just look at that chart, you should get the sense that part of that is to bounce back from the big dip we saw in the second quarter. And so I wouldn’t take that as indicative of a new run-rate on the non-fixed income base.

Great. Thanks, folks and congrats on the quarter again.

Thanks a lot.

We have time for one final question. Phil Stefano with Deutsche Bank, your line is open.

Yes, thanks for squeezing me in at the end here. So, you had mentioned the court case in Ohio and that there is a difference in the terms and conditions and I was hoping you could just remind us what the difference in the policy wordings is that continues to give us this confidence that the BI issue is less so for Travelers than it might be for others just given how that court case went?

Yes. So, circumstance subject to continuing pending litigation, so I am hesitant, particularly without the policy wording, there is – or certainly right in front of me to start parsing the language for you. So, maybe we can take that offline and figure out a way to do it, but probably right now, it’s not the right venue. I will say, we have said from the very beginning that we have got confidence in our policies in the way we think it would respond to business interruption. So far in virtually every case we have had, we haven’t had a bad outcome anyway. So I think I will just reiterate our confidence in the language that we have and say that we don’t feel any differently about our business interruption exposure and leave it at that for now if that’s okay.

No, that’s fine. I figured that was the answer, but it’s always worth a shot. The second follow-up for you just looking at the underlying loss ratio in auto and trying to compare and contrast third quarter to fourth quarter results, is it felt like we had the story of miles driven being down auto accident frequency benefiting, but we are looking at a difference of 700 basis points give or take of underlying, how much of this is miles driven coming back, how much of this is potential short-term pricing actions that you are contemplating? How do we look at these two quarters to help us as a base for what the forward COVID impact could be?

Phil, it’s Dan. Let me jump in. I think we look at both of the last few quarters as extremely good results and the third quarter was maybe an outsized good result. Remember, as we have gone throughout the year, we’ve been trying to set our expectation of when you look at miles driven when we then filter that through what are the specifics of our book, what do we expect to see for losses then as months and quarters go by, losses actually emerge. So, it’s a little bit of a moving target. The variances have been significant, I wouldn’t put a tremendous amount of stock in and the difference of what came through the loss ratio in one quarter versus the next, I think, as Michael probably indicated and as you would not be surprised by on a go forward basis, we wouldn’t expect margins to continue to be that strong in auto and you see that reflected in our pricing actions in the most recent quarters. So I’d step back more and think about the year in aggregate, which has definitely had a benefit – definitely had a benefit from the COVID environment and recall that in response to that we have also returned more than $200 million of premiums to policyholders. I don’t know I can give you anymore specific answer than that.

No. Great, thanks.

The question-and-answer session has ended. It is now my pleasure to turn the call back over to Abbe Goldstein for final remarks.

Hi, thank you all again very much for joining us. We appreciate that. And as usual, if there is any follow-up, please get in touch directly with Investor Relations. Thanks and have a great day.

This concludes the Travelers’ fourth quarter 2020 results conference call. We thank you for your participation. You may now disconnect.