Good morning, ladies and gentlemen. Welcome to the Second Quarter Results Teleconference for Travelers. [Operator Instructions] As a reminder, this conference is being recorded on July 20, 2023. At this time. I would like to turn the conference over to Ms. Abbe Goldstein; Senior Vice-President of Investor Relations. Ms. Goldstein, you may begin.

Thank you. Good morning, and welcome to Travelers' discussion of our second quarter 2023 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 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. And now, I'd like to turn the call over to Alan.

Thank you, Abbe. Good morning, everyone, and thank you for joining us today In the face of an historic cat quarter, our top and bottom line results demonstrate the strength of our franchise and the resilience of our business model. This quarter, we reported strong underlying results and investment returns, as well as, net favorable prior-year reserve development, which were essentially offset by an historic level of industry-wide catastrophe losses. There were PCS designated catastrophe events taking place on 88 of the 91 days of the quarter. Despite pre-tax catastrophe losses of $1.5 billion, we generated slightly positive core income for the quarter. We are very pleased with the underlying fundamentals of our business. Pre-tax underlying underwriting income of $781 million for the quarter was up nearly 40% driven by record net earned premiums of $9.2 billion, and a consolidated underlying combined ratio, which improved 1.7 points to an excellent 91.1%. Earned premiums were higher in all three of our business segments. Underlying profitability in our Business Insurance segment was particularly strong. The underlying combined ratio improved by 3 points to an excellent 89.4%. The underlying combined ratio in our Bond & Specialty business was higher year-over-year, but at 87.8%, still generated a very attractive return. In our Personal Insurance segment, the underlying combined ratio improved by 2 points, reflecting the actions we've taken to improve profitability. Turning to investments, our high-quality investment portfolio generated net investment income of $594 million after-tax for the quarter, reflecting stronger and reliable returns from our fixed-income portfolio and solid returns from our non-fixed-income portfolio. Given our confidence in the strength of our business, we returned $633 million of excess capital to shareholders during the quarter, including $400 million of share repurchases. Turning to production. Thanks once again to excellent execution by our colleagues…

Thank you, Alan. We're pleased to have generated record levels of earned premium this quarter, and an underlying combined ratio of 91.1%, a 170-basis point improvement from last year's strong results. This led to a very strong underlying underwriting gain of $615 million after-tax, up $171 million or 39% from the prior-year quarter. The expense ratio for the second quarter improved 40 basis points from last year to 28.6%, once again, benefiting from the combination of our focus on productivity and efficiency coupled with strong top line growth. As Alan mentioned, the industry experienced a very active cat quarter and our second quarter results include $1.5 billion of pre-tax catastrophe losses, our second largest ever cat amount for a second quarter. As disclosed in the significant events table and our 10-Q, we had six events surpass the $100 million mark in Q2, the most ever for a single quarter since we began disclosing the table in 2013. Turning to prior-year reserve development. We had total net favorable development of $60 million pre-tax. In Business Insurance, net unfavorable PYD of $101 million was the result of better-than-expected loss experienced in workers' comp across a number of accident years being more than offset by an increase in some of our other casualty reserves, as well as, for run-off operations. In Bond & Specialty, net favorable PYD of $119 million was driven by better-than-expected results in management liability and surety. Personal Insurance at $42 million of net favorable PYD, driven by Homeowners and Other. After-tax net investment income of $594 million was in line with the prior-year quarter. Fixed maturity NII was again higher than the prior year quarter, reflecting both the benefit of higher average yields, and higher invested assets. Returns in the non-fixed-income portfolio were solid, but as expected, we're not…

Thanks, Dan. Business Insurance produced $402 million of segment income for the second quarter, down from the prior-year quarter, driven by prior-year reserve development and higher cats, as Dan mentioned. Underlying underwriting results continue to be exceptional, with the underlying underwriting income up more than 50% from the prior-year quarter. We're once again particularly pleased with the quarter's underlying combined ratio of 89.4%, which improved by three points from the prior-year quarter. The loss ratio benefited from property losses that were about a 1.5 points better than our expectations for the current year quarter. The loss ratio also improved due to earned pricing. The expense ratio remained strong at 30.1%. Net written premiums increased 18% to a quarterly record of $5.2 billion, driven by renewal premium change of 12.8%, retention of 88% and new business of $671 million, all record highs. Underneath RPC, renewal rate change accelerated sequentially from the first quarter by 2.5 points to 7.2%. We're thrilled with these production results and the superior execution by our field team in the marketplace. In terms of pricing, we're pleased with our response to the persistent environmental headwinds in both the property and liability lines. In each of our product lines, renewal premium change was higher than the first quarter. And beyond pricing, we continue to improve terms and conditions to ensure we're achieving an appropriate risk-reward trade-off on the business we write. As we always say, we execute in a granular manner, deal-by-deal, class-by-class. Into that point, we're thrilled with our execution. Demonstrated by record retention of 88% on our very-high quality book of business and rate that is thoughtfully segmented by return profile. New business, as a percentage of the book, returned to pre-pandemic levels, led by the property line. We're pleased with new business dollars at an all-time high. And as always, when it comes to new business, we remain focused on risk selection, underwriting terms and conditions, and pricing. We're also very pleased with the impact that our strategic investments are having on our production results. As for the individual businesses, in Select, renewal premium change was up 1 point from the first quarter to a strong 10.6%, while retention also remained historically high at 84%. New business increased $30 million or 28% from the prior-year quarter, driven by the continued success of our BOP 2.0 product. In Middle Market, renewal premium change was up more than 2 points sequentially from the first quarter to a historically high 10.5% with renewal rate change increasing sequentially by 1.5 point to 5.9% and continued strong exposure growth. Retention was once again exceptional at 90%, while new business was up 32% from the prior-year quarter, with increases across all account sizes in most markets. To sum up, Business Insurance had another strong quarter and continued to execute on the fundamentals to drive profitable growth. With that, I'll turn the call over to Jeff.

Thanks, Greg. Bond & Specialty posted strong top and bottom line results for the quarter. Segment income of $230 million was up slightly from the very strong prior-year quarter. The combined ratio was a terrific 77.1%. The underlying combined ratio was a solid 87.8% for the quarter. A small number of surety losses drove the roughly 4 point increase in the underlying loss ratio year-over-year. As we've said before, surety losses can be a bit lumpy. Even with the incremental losses this quarter, our returns in the surety line remain excellent. Turning to the top line, we delivered record net written premiums this quarter. In domestic management liability, we are pleased that we drove record retention of 91% in the quarter, up 2 points sequentially and 3 points from the second quarter of 2022, while continuing to achieve solid renewal premium change. This result reflects our team's deliberate execution to retain our high-quality book of business in light of the very strong returns. We're also pleased that we increased new business 11% from the prior-year quarter. That's a reflection of the strong franchise value we offer to our customers and distribution partners, and a lot of hard work by our team in the field. Additionally, we are pleased to report record surety net written premiums in the quarter. So both top and bottom line results for Bond & Specialty were once again strong this quarter driven by our continued underwriting and risk management diligence, excellent execution by our field organization, and the benefits from our ongoing strategic investments to extend our market-leading competitive advantages. And now, I will turn the call over to Michael.

Thanks, Jeff, and good morning, everyone In Personal Insurance, the second quarter segment loss of $538 million and a combined ratio of 122% were significantly impacted by catastrophes. While it's not unusual for us to have a loss in the second quarter given it's typically the quarter with the highest weather-related losses, catastrophe losses this quarter for both us and the industry were significantly elevated compared to historical results. Net written premiums for the quarter grew 13%, driven by double-digit renewal premium change in both Domestic Automobile and Homeowners and Other. The underlying combined ratio of 94.1% improved 2 points from the prior-year quarter, reflecting an improvement in the underlying combined ratio in Homeowners and Other, partially offset by an increase in Automobile. In Automobile, the second quarter combined ratio was 108.4% with an underlying combined ratio of 103.5%. The underlying combined ratio increased 1.7 points from the prior-year quarter due to higher severity, driven by increased vehicle replacement and repair costs and a mix-shift from collision-only claims for its claims with bodily injury and third-party property damage, which is more consistent with more cars on the road leading to more multi-car accidents. These increases were partially offset by the growing benefit of earned pricing and a lower expense ratio. While some of the inflationary pressures in auto are beginning to show signs of easing, they are not improving at the rate we expected. Consequently, we're not yet achieving the written rate adequacy levels, we had anticipated. While we continue to make progress and expect to get there in the coming quarters, exactly when will depend on a few things. For example, how quickly inflation comes down, how quickly we can get additional rate through the regulatory process and our actual loss experience. In Homeowners and Other, the second quarter…

Thanks, Michael. We're ready to open up for questions.

[Operator Instructions] Your first question comes from the line of Greg Peters of Raymond James. Please go ahead.

Well, good morning, everyone. I guess, notwithstanding on Michael's comments, I - just curious about if there's going to be any shift in the strategy on property considering what's going on with catastrophe losses. And I'm also trying to triangulate or bridge the difference between personal lines, which clearly was a negative surprise, and I think, Greg, in your comments you said property actually was a better net gain for you guys relative to expectations. So any broad comments on your views on property in light of the cats and in the different segments too, please?

Sure. So I can start on the property side, Greg. Certainly, the catastrophe experience in the quarter was significantly worse than prior year and n worse than our expectations. In terms of our shift in strategy, what I would say is we continue to execute a series of actions in the property line to manage growth and improve profitability. And again, first and foremost, you see that in the pricing and the production statistics that we shared with you on the webcast. But beyond that, we're managing terms and conditions, think deductibles, think roof age eligibility, think coverage levels on roof replacement, and a variety of actions that we look at very granularly state by state, market by market, account by account. And then one of the other things we're really encouraged by, Alan had mentioned in his discussion around artificial intelligence, is our aerial imagery and artificial intelligence-enabled capability we have there to refine our underwriting and our risk selection. So less the shift in strategy and more a continuation of a really broad array of profit management and profit improvement efforts in the personal lines property space.

Hi, Greg. This is Greg. Just to follow-up on the commercial side, and so many times the catastrophes - the split between personal and commercial can be - really depends on the concentration of where the catastrophes hit in terms of where commercial businesses are. In terms of your comment, I think you referenced in my prepared comments, when I was explaining the underlying combined ratio, and I mentioned that property was better than expectation, and that really was non-cat property.

Got it. All right. Thank you for the answers. And then, I guess, I'll pivot, Greg, also during your comments, you talked about reserve development. Maybe spend a minute - don't really touch upon workers' comp, but the adverse development in the other lines.

Hi, Greg, it's Dan Frey. I'll take the PYD comments. So in the quarter for Business Insurance, as we said, overall unfavorable $101 million. Comp continues to be favorable. The comp favorable was very strong this quarter, more than $250 million of good news. So that leaves us with the other liability lines including run-off being unfavorable. And that's really led by umbrella, which is sort of the poster child for perpetual core levels of inflation just compounding and pushing more claims up into the umbrella layer. But a couple of things to put - to put that in context, I guess, we're making a relatively small adjustment to those liability lines, given the fact that there are more than $15 billion worth of reserves in those lines. The returns in BI continue to remain excellent. And across the company, I'd just remind us, including the good news coming out of Bond & Specialty, which is also liability type coverage, we had a net favorable of $60 million for the quarter.

Got it. Thanks for the answers.

Thank you. Your next question comes from the line of David Motemaden of Evercore ISI. Please go ahead.

Hi, thanks. Good morning. I had just a follow-up question just on the adverse prior-year development. I guess, what does that do to your view of future loss cost trends? It sounds like some of it is run-off, but also some of it is more business that you're obviously still writing. So I'd be interested in how you've changed your 5.5% to 6% loss trend assumptions.

Yes, David, good morning. It's Alan. Thank you. Two things in response to that. One, I would say that - I would just point you to the combined ratio and underlying combined in BI in the quarter, and obviously, we think about how prior-year development influences that through - base your changes and you can see a pretty solid results. And as we've shared with you before, I always - I always want to just preface this by saying, it's a very blunt instrument to try to capture what's going on across billions of dollars of premiums in a single loss trend metric. Every line has its own dynamics, and the question usually comes in, in terms of loss trend, but, of course, there is base year changes, there's exposure changes, there's other adjustments to loss activity. So always puts and takes in all those - in all those measures. But all-in, I'd say there really hasn't been much significant change. And I would go back to a comment that Dan made, on $15-odd billion of reserves, this is a relatively small adjustment. And we're always every quarter looking at all our reserves, and sometimes they go up, sometimes they go down, but relatively small. And as Dan said, the returns in BI continue to be exceptional.

Got it. Thanks. And then I guess, I should just take that. I mean, it's obviously a very fluid environment. But I guess, it would - fluid macroenvironment. It would seem that just given the re-acceleration in renewal rate change, the gap between written rate and loss trend has been expanding. I guess, is that the right take? Or is there anything else that I'm missing there? Obviously, we have to take catastrophes into account, but there - I know Fidelis has come in. I'm just wondering if there's anything else I'm missing on the underlying loss ratio.

No, I mean other than - Greg mentioned in the script that the non - the non-cat property losses came in a little better than we thought. But for the most part, I think the way you slice it up is about right.

Yes. And David, it's Dan. I'll just - you mentioned Fidelis, I mean, we said at the beginning of the year that Fidelis was not going to be big enough to have a meaningful impact on the underlying combined ratio, and that's still the case including Q2.

I think you got it right, David.

Thank you.

Thank you.

Your next question comes from the line of Ryan Tunis of Autonomous Research. Please go ahead.

Hi, thanks. Good morning. So, yes, Alan, I hear you that you've got $15 billion reserves, sometimes they go up, sometimes they go down. But I guess, I'd say, they don't usually go up quite as much in a given quarter, especially when there is so much workers' comp reserve releases, and I mean, there's also like a pretty sharp acceleration of pricing. So it does look from the outside like - I don't know maybe you guys are seeing something new or you've identified something from a trend perspective. I guess, just if anything, in this review, I guess, what have you learned this year that, I guess, you might not have known a year ago?

Let me start, Ryan, and I will turn it over to Dan. But we're squaring triangles, and we're doing - we're applying actuarial analytics to a series of triangles and historical losses, and that's really how we're coming up with this. I mean, the overwhelming thing that all of us are looking at is higher levels of economic inflation. And so that - you know, that is no doubt a contributor here.

Yes, Ryan. The only thing, I think, I'd add to Alan's comments, which I agree with. We've said, as people have asked over the last several quarters and pricing has continued to be strong for quite a while now, is that sustainable? And here you see it ticking up and I think we just keep going through the litany of pricing is going to be a reaction to what's your - what's your return target and what's happening in the loss environment. So we talk about continued increased frequency and severity of weather losses and you see that certainly this quarter, headline inflation, social inflation, that we said never went - never went away, and an uncertain overall macro environment. So those things continue to factor into our pricing. Those things also get evaluated every quarter and every year in terms of our view of loss trend in prior-year reserve development. So what you're seeing here again across the place, net favorable prior-year reserve development, I get the focus on the liability lines so - but really what you're seeing there is a degree of difference as opposed to some surprise. We've been talking about inflation for a long time and we were the first people to be talking about social inflation and never thought that went anywhere. So directionally, it's not a surprise. It's just an adjustment to the order of magnitude.

Got it. And then for Michael, and maybe Greg, I guess, on the cat front, I mean, you guys were highlighting a frequency of events. But it seems like to me that severity must be at least as bigger of a contributor. Then maybe I'll just talk about - yes, in other words, I don't think I would have ever expected $1 billion of personalized with 6 Bcf] events. So from a severity perspective, like how - what's weighing on is here? Is it like the size of the hail, in other words, like the nature of the weather? Or how much of is elevated repair cost, demand surge like that type of thing?

Hi, Ryan, it's Michael. Yes, all of that. So I think your point is a good one. So if you look at the quarter, I think the number of events, PCS designated events was 19, that is above the long-term average. So there is a frequency of events that's higher. And that's a relatively high number for Q2. But actually, the majority of it really is severity. Now, some of that severity, to your point, is the underlying weather activity itself. I think on average, the events in this second quarter impacted about eight states apiece as opposed to six states apiece, so they were a little broader and more all-encompassing. And then again, historical averages. So you've got the number of events and then the size and magnitude. There certainly are anecdotal total evidence of more severe larger hail, those types of things. But the other item that you mentioned, it really is as big, if not a bigger factor than sort of the frequency and the magnitude of the events, and that's just insured values and cost to repair and the severity pressures that we've been talking about across both auto and property and frankly any first-party coverages that we offer as an organization really exacerbating that. So I think it's - I think it's all of those things, but it's at least as much a severity issue, and at least as much driven by economic inflation as it is the weather activity itself.

And Brian, from a Business Insurance or a commercial point-of-view, we weren't immune from some of the same dynamics that Michael just articulated. I think we just have a broader array of products that you get a little more diversification when you add the workers' comp, the GL and all the other products on top of that.

Thank you. Your next question comes from the line of Alex Scott of Goldman Sachs. Please go ahead.

Hi, good morning. First one I have is on the Business Insurance underlying loss ratio improvement. I was hoping you could help us unpack it a little in terms of workers' comp versus maybe the other products. Certainly, the reserve development is sort of a good indication of how healthy things are on workers' comp, but pricing is down. I mean, is that a business line that's helping the underlying improvement year-over-year, or is it detracting from it? Could you kind of dimension that and help us think through some of the underlying drivers?

Yes, Alex. It's Dan. We're really - we don't do profitability by line. We're not going to go into that level of detail. You call out comp, it has been a good line for us. It continues to be - continues to be a good line for us, but really the way to think about BI is the blend of the products and that's the level at which we will talk about the underlying.

Okay. Second question I had is on pricing. There's, I'd say, more reacceleration in your pricing than we're hearing from, I guess, Marsh earlier today, and some of the barometers that are out there and so forth. Anything that's unique around the way you're approaching the market there? And could you help dimension it all, how much of that reacceleration of pricing is necessary for the reinsurance costs? You mentioned, it sounds like maybe loss cost trend hasn't moved that much. But help us think a little bit about how much of that can help you to tread water, first allow more underlying improvement?

Yes, I think, we're going to try to stay away from forecasting margins, and I think, it may have been David who went to this question earlier, and just said renewal premium change is close to 13% and you're saying there's not a lot of movement in loss trend, it was - sort of should we take it on face value? I think, broadly the answer is yes. But really, I think what's going on here is there are some headwinds. There is - there - reinsurance costs are higher, inflation is higher, we're in a tight labor market, there's weather and so on So we're reacting to all those things. And on the other hand, after years of pretty good pricing returns, we're in a pretty good place. And so hats off to our field organization. They are threading that needle incredibly well. And returns are excellent, and we're pricing to continue to maintain and maybe even improve the returns.

Thank you. Your next question comes from the line of Elyse Greenspan of Wells Fargo. Please go ahead.

Hi, thanks, good morning. My first question, within BI, the underlying loss ratio improved. When we look at the quarter, right, improve - the improvement year-over-year was about 300 basis points. And I know you guys said that there was a 150 basis points from better property results. I think that was 1 point negative last year. So if we're looking year-over-year, is it right to say, it was 2.5 points better on property, and then the remainder, like 50 basis points is earned rate over trend or is there something else going on, and I know that's just kind of looking all-in, but something else going on with the margins in the quarter?

Yes, Elyse. It's Dan. So I think you're thinking about the property piece, the right way. And then there's 50 basis points left over, and Greg mentioned the continued benefit of earned pricing. That's not the only thing going on in there. As always, there are - there are pluses and minuses. We're trying to call out the main drivers for you, and those are - those are the two main drivers. If there was anything else of real significance, I think we do a pretty good job of trying to make sure we include that in the commentary.

Thanks. And then my second question on - the ROCE improved a good amount sequentially. It sounds like that was broad-based in property and liability lines. I know this is obviously a bigger quarter for property in terms of business mix. I just want to get a sense of just confirm that I'm thinking about that right that it was more than just property that drove the improvement in ROCE. And how should we think about - any color you could just give in terms of that ROCE as we think about the Q3 and beyond?

Are you talking about renewal price change, Elyse, is that?

I was talking about the renewal rate, but - renewal rate - yes, in BI.

Yes, Elyse, you're right. I mean, clearly, we had a real strong quarter in terms of both rate and exposure in property. But we also had significant movement across the rest of the portfolio also, again, in both rate and exposure.

I'd say, at least, if you're asking whether it was broad-based or narrow, I think the answer to that it was broad-based.

Thank you. Your next question comes from the line of Brian Meredith of UBS. Please go ahead.

Yes, thanks. A couple here. First, for Jeff, I know you talked about surety losses just being a couple and they can be lumpy. But then are we seeing any signs of maybe some pressures in that line from a loss cost perspective given what's going on with commercial real estate and other things that are happening right now?

Hi, Brian. It's Jeff. Thanks. I would say that we're watching inflation in materials and labor costs relative to construction. But honestly, really I think the prepared remarks really summed it up for you, right? We had a couple of losses that drove the underlying loss ratio change and ultimately this can be a lumpy line, and we feel really good about our market-leading surety book.

Maybe Higher interest rates matter also, I mean, when you get a big jump in financing costs, right, for contractors and stuff?

Sure. The credit availability for our contractors is absolutely an issue. We take that into account with our high credit quality book of business the way we underwrite this book. We got a high-quality book of contractors that we focus on there. And so your point is well taken. It's a part of the underwriting process. That's where I'd leave it. Thanks for the question.

Thanks, Jeff. And then, Mike, I'm just curious, can you talk a little bit about kind of the regulatory environment right now in personal lines? Obviously, some states are getting a little more content on rate, but are we seeing any push back kind of starting to emerge from certain states as far as the level of rate going through?

Yes, Brian, thanks for thanks for the question, and I think it's - I think it's a good observation. As we talk about pretty consistently, we feel pretty good about our relationships with the departments of insurance, are we really endeavored to make sure they have all the information necessary to evaluate and approve our rate increase requests? And starting with us, we continue to file for increases that align with our most recent experience and our indicated rate needs. That said, what we're seeing and you're seeing in the headlines, some news about increased scrutiny and/or states considering or proposing changes to the way that they regulate pricing in response to the continued period of increases necessary to keep up with loss costs. And so I'd say, on the margin, there is a couple of places where it's getting a little more challenging. But broadly speaking, we have still been able to file and get approved the rate we think we need in response to the increased costs.

Thank you.

Thank you. Your next question comes from the line of Josh Shanker of Bank of America. Please go ahead.

Yes, thank you. Alan, you began the conference call with the preamble on artificial intelligence and analytics. It's been an unusual three years in terms of interpreting loss cost trend with the courts being open and closed during COVID and very wildly changing conditions under loss trend. Is the data quality that you are looking at right now any less reliable in your mind than you think that normally is? are we in a state where extra caution needs to be placed on being comfortable with those numbers that you're using for reserving practices?

I would say the answer to that Josh is, yes. And I think we've said pretty consistently over the last few years that we have been cautious and reflecting that level of uncertainty into the way we think about loss cost and reserves. So I think the answer is yes, and we've been doing exactly that.

And then, I mean, look, we're all just throwing shelves from the cheap seats, a little bit. Can you talk a little bit about some of that, how you get more conservative or how you - in a time of uncertainty, how you get better or what you're doing in order to offset the risks associated around what's bad data and whatnot?

Yes, it's probably a longer conversation, Josh. We can follow-up it. But let me just give you one example, and I think we've said this over the last couple of years. If you were just looking at the data, you might have assumed that some aspects of loss trend had improved over the last couple of years. And whether that's true in Personal Insurance, and you see the lack of negative PYD in personal auto, for example. Or if you look at social inflation, we said if the courts were closed, then that data could have been misinterpreted to mean things are getting better. You look at that data and you say, I don't believe it and we understand that it's distorted and that there are other things that could be impacting it. And so we are going to do the best we can to try to understand where the uncertainty is coming from and to make sure that we're - that we're reflecting our view of uncertainty as we're thinking about either our prior-year reserves or managing our current loss taxes.

Thank you. Your next question comes from the line of Meyer Shields of KBW. Please go ahead.

Thanks. I want to start with a question on personal lines. Michael mentioned that the deceleration and claim cost inflation wasn't as strong as we anticipated. I thought you could give us some color on what - I guess, the indicators that you've previously used what they're suggesting for personal loss cost inflation for the back half of the year?

Sure, Meyer, I don't - I don't know that - that the external indicators that we look at are significantly different than the ones you look at or have - or do have available. What I can say is, auto severity has sort of remained stubbornly in the low-double-digits, and we had not anticipated that it would remain in double-digit territory for this long. I think the other thing I commented on in my prepared remarks was that we are seeing some signs of easing. The predominant thing, I'm talking about there is the Manheim Wholesale Index. And again, an update just came out this week on that, and I believe Manheim's estimate now is that used car prices will end 2023 below 2022 levels. But importantly, that's just one element of our loss cost, right? So wholesale car prices impact retail car prices, which impact our total loss settlement values, which is a portion of our loss cost. I think one of the reasons you continue to see double-digit pressure on severity is continued elevation in repair costs, labor, materials, et cetera. And then again, we've talked about just broad-based severity pressure. I think what we are seeing is some of the potential good news that we're starting to see in the physical damage coverages is being offset a little bit by this shift in mix to more claims with bodily injury and property damage and so on a mix - that mix impact impacts those loss costs as well. But again, the short answer is, we're still seeing low-double-digit trends in auto severity and we hadn't anticipated that they would last this long.

Okay, perfect. That's helpful. And final question. When we look at, I guess, whether it's possibly changing weather patterns or the mix shift within BI slightly towards property or just inflation pushing more weather losses above the cat threshold, how do you think about sort of the magnitude of coming year's catastrophe load compared to where you've been recently?

I'm not sure we're quite ready to talk about that or to certainly give an outlook for that. Obviously, as we start to put our views together for 2024 and beyond, we'll think about the experience that we've had this year and in recent years, and other factors whether that's changes in exposure in our book or other things and we'll come up with a view that we hope will be sort of thoughtful and appropriate.

Thank you. We have time for one more question. Your next question comes from the line of Tracy Benguigui of Barclays. Please go-ahead.

Thank you. Good morning. My focus these days is on the liabilities, and I especially appreciate your legal perspective, given your background, Alan, and I am not sure if AJ is on the call or not. Last quarter, you indulged me by talking about this. And this quarter, I'm wondering if you can indulge me again and talk about PFAS. Sorry in advance, my question is quite meaty. Is PFAS, a chemically - a chemical explicitly excluded from GL, like included in a pollution exclusion. And for pre-1986 exposure, does the statute of limitations apply?

Yes. Tracy, it's hard to answer a question like that without claiming a policy. So I'm going to - I'm going to avoid that. And we're happy to take this offline with you and talk a little bit more about it if we can do that consistent with Reg FD. About PFAS, what I would say about that is, this issue has now been around for a while. What we know about it is, it is reflected in our reserves, and I'm not sure there's a lot more to say about it at this point.

Okay. So you said, reflected in your reserves, so the adverse development you took in the quarter didn't reflect an update to PFAS.

Didn't say that Tracy, but we're not going to really go into the drivers. We gave you the big drivers of the - of PYD, We're not going to go into the specific coverage issues in PYD.

Thank you. There are no further questions at this time. I would like to turn the call over to Ms. Abbe Goldstein.

Thank you very much. We appreciate everyone's time. And as always, if there's any follow-up, please feel free to reach out directly. Thank you.

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