Good morning, ladies and gentlemen. Welcome to the third quarter results teleconference for Travelers. We ask that you hold all questions until the completion of formal remarks, at which time you'll be given instructions for the question-and-answer session. As a reminder, this conference is being recorded on October 22, 2019. At this time, I'd 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 third quarter 2019 results. Hopefully, all of you have seen our press release, financial supplement and webcast presentation released 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, Chief Financial Officer; 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 your 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 our webcast. 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 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. This morning we reported third quarter net income of $396 million or $1.50 per diluted share. Our core income was $378 million or $1.43 per diluted share. Our results this quarter were impacted by net unfavorable prior year reserve development and business insurance. Continued favorable development in the workers comp lines was more than offset by a strengthening of asbestos-related reserves and reserves in GL and commercial auto lines. As I shared at an Industry Conference last month, GL and Commercial Auto were impacted against quarter by a tort environment that is deteriorated beyond our elevated expectations. As I'll explain in a minute, we remain confident that this is an industry wide issue and that we're responding appropriately to recently emerging data. Underwriting income in the quarter benefited from record high net earned premium of $7.2 billion, driven by higher pricing and strong retention over the last four quarters. Also contributing was a continued execution of our strategy to invest in the capabilities, we believe are required for success given the forces of change we've previously identified as impacting our industry. In addition to investments in talent, technology and workflow, this includes progress in terms of our strategic focus on productivity and efficiency. As reflected in our sub thirty expense ratio for both the quarter and year-to-date. As you've heard us say, improved operating leverage gives us a flexibility to invest further in our strategic priorities but the benefit from the bottom line and or be more competitive on pricing, without compromising our return objectives. In terms of the underlying underwriting margin, as you can see on page 4 of our earnings presentation, the underlying combined ratio was solid at 94.1% but up 1.1 points over the…

Thank you, Alan. Core income for the third quarter was $378 million down $309 million from the prior year quarter, and core ROE was 6.5%, down from 12%. Both measures reflect the elevated levels of general liability and commercial auto losses that Alan described, which impacted both prior year reserve development and the current action here, as well as an elevated level of non-cat weather losses. Our third quarter results include $241 million of pre tax cat losses, compared to $264 million in the prior year quarter. Prior year reserve development, which I will discuss further in a few minutes, added 4.1 points to the combined ratio, compared to favorable 0.2 points in last year's third quarter. The consolidated underlying combined ratio of 94.1%, which excludes the impacts of cats in PYD, increased by 1.1 points, driven by elevated general liability, commercial auto and non-cat weather losses, partially offset by favorable experience in workers compensation. The adjustments we made this quarter to reflect our latest view of the tort environment added about half a point to the underlying combined ratio, including a catch-up related to the first and second quarters. In terms of weather, noncatastrophe weather-related losses added about two-thirds of a point to the quarter-over-quarter change in the consolidated underlying combined ratio. For context, total weather losses in the aggregate, cat and non-cat, were somewhat worse in the quarter than what we planned for but year-to-date, total weather losses were well within the range of what we would consider normal. The third quarter expense ratio of 29.5% was in line with recent periods and brings the year-to-date expense ratio to 29.8%, reflecting the terrific progress we've made in recent years. Both the third quarter and year-to-date expense ratios are about 2 points below where they were at this point…

Thanks Dan. Insurance produced segment income of $179 million and the combined ratio of 107% both impacted by net unfavorable prior year reserve development of $316 million pre tax as Dan mentioned. The underlying combined ratio of 95.9% was a half a point higher than the prior year quarter. There are several moving pieces underneath that variant, so we've included information on slide 9 of the earnings presentation to break down the components of the change. I'll start with the notable items that increased the underlying combined ratio year-over-year. The first three year items that we discussed with you previously with the first of those being the half point impact from the lower earned premium due to the net new cat treaty. The remaining two items related actions we took last quarter and in the fourth quarter of last year related to the challenging trends in the tort environment. The last of the un-favorable items related to adjustments to our loss estimates resulting from an even further deterioration in the tort environment as Alan and Dan have discussed. The impact of these latest adjustments was about a point, with about a third of that relating to the current quarter and the remaining two-thirds of that being the re-estimation of the first and second quarters of the year. Similar to last quarter, this quarter's adjustment included both commercial auto and general liability. I'll note that unlike Commercial Auto, where returns are clearly inadequate, the returns in the general liability line or primary-end access are much healthier for us. Turning to the favorable year-over-year items, first one is point of favorability relating to adjusting our workers' compensation losses, about half of that impact relates to re-estimating the first two quarters of 2019. Second, our expense ratio benefited by about half a point…

Thanks, Greg. Bond and specialty delivered another quarter of strong returns and growth. Segment income was $139 million, a decrease of $57 million from the prior year quarter, primarily due to a lower level of net favorable prior year reserved development and to a lesser extent, modestly higher management liability loss estimates for the current year. The underlying combined ratio increased 5.3 points from the prior year quarter. As you can see on Slide 14, about 3 points of that is a third quarter adjustment for management liability coverages, about two points of which reflects a re-estimation of losses from the first two quarters of 2019. Despite the increase the combined and underlying combined ratios remain strong at 83.3% and 83.6%, respectively. Net written premiums for the quarter were up 13% with strong growth across all businesses. In domestic management liability, we are pleased that retention remained at a historically high 90% with a renewal premium change higher at 4.8%. New business for the quarter was a record $67 million. Domestic surety growth reflected higher bond bonded contract sizes and our international growth was primarily in our UK management liability businesses, including from new product offerings. Our production results reflect the profitability of our high-quality portfolio, strong field execution and our strategic long-term investments in our suite of products and services, together with our commitment to thoughtful and disciplined underwriting and risk selection. As reflected in our improving renewal premium change, we are pursuing price increases for coverages, where we are experiencing elevated levels of loss activity and we will continue to do so. So bond and specialty remained strong, results remained strong and we feel terrific about our ability to continue to deliver excellent results over time. And now I'll turn it over to Michael to discuss Personal Insurance.

Thanks, Tom and good morning, everyone. In personal insurance this quarter, we're pleased with our continued execution in the marketplace as we grew premium and policies in force in both our agency automobile and homeowners and other product lines, continued to achieve excellent profitability in agency automobile and reported good results in agency homeowners and other, particularly considering a high level of noncatastrophe weather-related losses. The combined ratio for the quarter was 98%, slightly higher than the prior year quarter of 97.2%. For the segment catastrophes and net favorable prior year reserve development were comparable to the prior year quarter, while the underlying combined ratio was higher by 1.1 points, primarily driven by higher noncatastrophe weather-related losses and the impact from the new catastrophe reinsurance treaty partially offset by lower other loss activity. Net written premiums for the quarter grew 7% with strong retention, renewal premium change and new business. Agency automobile delivered another strong quarterly performance with the combined ratio of 93%. This is our seventh consecutive quarterly combined ratio under 96%. The underlying combined ratio for the quarter of 92.7% was comparable to the prior year quarter and consistent with an excellent year-to-date result of 92.8%, two points lower than the prior year. In agency homeowners and other, the third quarter combined ratio of 100.2%, increased 1.7 points from the prior quarter, driven primarily by a higher underlying combined ratio, partially offset by lower catastrophe losses and a favorable change in prior year reserve development. The underlying combined ratio for the quarter of 93.5% was five points higher than the prior year quarter, as approximately four points of higher non-catastrophe weather-related losses and 1.5 point impact from the new catastrophe reinsurance treaty were partially offset by lower other loss activity. The higher non-catastrophe weather-related losses this quarter are…

Thank you very much and now we're ready to take your questions.

[Operator instructions] Our first question comes from the line of Jay Gelb with Barclays. Your line is open.

I want to touch base on the liability claims inflation issue across GL, commercial auto and DNO, I realize that this topic was discussed and especially warned about it at the Barclays conference last month and what I'm trying to get a perspective on is whether the company can say we have the all clear on reserve issues going forward are the sole risk of more and more reserve strengthened going forward given there has been an issue in three of the past four quarters?

I don't think that we or any company could ever give that kind of assurance, we take our best people our best processes, we look at the data that we have, and we come up with our best estimate every quarter. When we look back over the last four quarters of decisions that we've made, and the estimates that that we published, we look at it and say gee based on the information we had at the time, we think we made the right call, we weren't too aggressive in any of our assumptions, we in fact picked close to the top end of the range and in many of those cases and again this quarter we looked at the data and we think we've done the right thing. So and that's one of the reasons why we wanted to provide Slide 21. You can see this is an industrywide phenomenon and you can see the extent of the shift at least from an industry perspective. This isn't in our data, but it's illustrative and relevant in thinking about our data, it's quite a significant shift. And in one of the associated factors is just lengthening of the claim development pattern and that's a difficult thing to assess as it emerges. And so, with every quarter, we get a new data point, with every new data point, we get a different trend line and we put our best estimate behind it and we continue to think running the business by the numbers, being very disciplined about that is the right way to do it. So, the answer is, we have got a long track record of managing that way over time. We think we're running it the right way and we think we have got the right estimate now, but I don't think we or anybody could give you a guarantee.

Right. Although. That's what you're saying, you are as confident as you can be that this issue is addressed, right.

I'm just confident as I can be that is our best estimate.

Right. Okay. And then, separate topic with regard to capital return I believe there was commentary in the prepared remarks around potentially less capital being returned as a percentage of earnings as the company's growth rate continues to accelerate. Would you be able to give us some parameters around that? I mean, historically, it's been right around 100% of earnings and return annually in the form dividends and share buybacks. Would that number be something closer to 75% or should we think about another number?

Jay, I don't think, it's Dan. I don't think, we would target a number and I don't think you should think about it as a target per say. That's going to be an outcome of the things that we always talk about, which is, how much capital do we have? How much capital do we think we need to adequately support the business that we're writing and that we expect to add on a go forward basis? What are all the investments we make in the business that we think can generate an adequate return and then we look at what's left and return it. The comment was intended to raise awareness, as you say, from this point forward, as we continue to grow premium to support a business that's got a bigger premium base you're going to need a bigger capital base. And if you perpetually return to 100% of earnings your capital base wouldn't change. So, it's simply to give an indication that, as we continue to grow, if all of those remained equal, you should expect something lower than it otherwise wouldn't have been. But, we're actually not going to target a particular percentage of earnings that we're looking to return.

And Jay, I'll just add two things to that. One is, no change at all in our thought process or growth toward capital management. This is in ordinary course just a function of what we have been able achieve in terms of growing premium base. And two, one of the reasons why we can't give you a number is it's going to depend on what lines we're growing in and what the geography is and it's just not linear math behind it. So, we couldn't actually give you that target.

I appreciate that. Thanks very much.

Thank you.

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

Hi. Good morning. My first question you know goes to your outlook for business insurance. Broadly, really unchanged and you guys are looking for margin improvement which given the commentary in the queue seems to be a function of price exceeding trend and some improvement in your international business. So, what I'm trying to get a sense of is, you know, what is the forward view on you guys have for price and then also for trend, can you give us a sense and I know it's a compilation of all your different businesses where trends sits today and then the outlook for that as we think about improvement coming into your margin from here in the Business Insurance segment?

Elyse, in terms of the outlook for price, you see the price that we've written and that's going to earn in. And we give you an outlook for RPC. And so, it's those two components that are going to earn in over time. In terms of loss trend, we always talk about that in BI from a segment perspective and we shared last quarter that we had increased our view of loss trend to 4.5%, and that's obviously on top of the current PIKs which have been adjusted throughout the course of the year. So, it really is the math from those pieces.

Okay. So, trend was 4.5% last quarter. So, it's somewhere within the vicinity of 5% right now?

No, no. The 4.5% was up a half a point from what we had historically talked about at 4%. Also, Elyse, I'll caution you that the 4.5% is our long-term outlook on loss trend. And so, in any given period, there's going to be some volatility in actual losses. But that's sort of the math and the way we think about it over time.

Okay. And then, my second question, within Business Insurance, you guys released reserves within workers' comp. You also lowered your loss PIKs there this quarter. I guess I'm just trying to get a little bit more color. Given the weaker pricing in comp combined with the higher loss trend you're now seeing in other businesses within that segment, what gave you guys, like, the conviction to change your PIKs there? And then, if you could also let us know the prior-year development on comp in the quarter. Thank you.

Elyse, it's Dan. So, I'll start. Thematically, what gives us the conviction to move on workers' comp is, as we see results come in, again, there's a long-term assumption around what's going to happen to the cost to settle workers' comp claims. A lot of that's driven by medical cost inflation. And we see in our data and there has been discussion in the industry that medical cost inflation has continued to be pretty benign relative to our expectation. So, that drives the prior-year release as another period of data comes by where, again, the cost of loss settlement comes in favorable to what our expectation was. In this quarter, in round numbers, order of magnitude is around $100 million pre-tax, a little less than that. That flows through into what we're seeing in the current period as well. Obviously, in the current period, you're reacting to both what are you seeing in terms of the number of claims coming in and those settlement trends. So, workers' comp has been a pretty steady level of good news relative to our expectations and that's why we adjusted both numbers.

Elyse, I'd just add. It's just ordinary course. We treated workers' comp this period like we treated it every other period. And we didn't actually make a change to either our frequency trend or severity trend. It's the impact of adjustments to prior-year reserve that's rolling through the current year.

Okay, thank you very much.

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

Hey, good morning. First question is on the catastrophe reinsurance treaty because I have a feeling it's going to trip us up in our models. So, I believe you said it's up to $1.2 billion. So, it's very close to the $1.3 billion retention. And you've reported $800 million of catastrophes, which is a separate definition. So, if we trip the $1.3 billion, which it seems likely from a profitability standpoint, does that start benefiting the underlying loss ratio in both the commercial and homeowner segments? Or just if you can help us think about that.

Mike, it's Dan again. I think as we discussed the treaty from when we first talked about it going back to the first quarter, it will depend on what weather actually comes in over the remainder of the year. If we have a treaty benefit, how the treaty benefit will be allocated back between what we would call major cats versus minor cats. So, if all the losses that come in from this point forward are major cat and that's what causes us to trip the treaty, and then those are the recoveries, most of the benefit would be attributable to major cats. If on the other hand, most of the weather that comes in is $10 million to $15 million PCS events that don't meet our major cat threshold, that's where the money will go. So, it really is too early to tell and it will depend on what actual weather we experience in the fourth quarter.

So, it could benefit the underlying loss ratio as well.

That's correct.

And lastly, so if I think about the past two to three years and what sticks out, top line growth, clearly, has improved for the company, but it's also coincided during a period of time of increasing non-cat weather losses. You guys have said catastrophe levels are -- you had changed your view on that being a little higher and you now are seeing kind of higher liability loss trends in the last year or so. So, is this all telling us that top line growth and maybe retention rates need to maybe fall a little in the coming year and take a step off the gas a little bit?

No. Mike, I don't think that's the way we think about it at all. We don't ring a bell and say grow or ring a bell and say don't grow. We execute one account, one class of business at a time, and we do that with a return focus. And so, we're out there executing on our accounts, trying to retain the ones we want, on the prices and terms and conditions that we want. And we're out there hustling our new business that we find attractive and that meets our return objectives. And when the sum of those things adds up to growth, we'll grow. And when it doesn't, we won't. So, there's nothing about the growth that's contributed to the loss environment and we are pretty good about reflecting the loss environment into our pricing models. And so, the answer is, I don't think so. The other thing I would say is the growth that we've seen is -- and I don't want to diminish the strategic efforts that's led to new business. I think that's important and it's been successful. But a very big component of the growth that we've reported has come from a very strong foundation of retention and price on top of that. So, that's important to keep in mind as well.

Your next question comes from the line of Larry Greenberg with Janney Montgomery. Your line is open.

Good morning and thank you. So, on commercial auto, I'm just trying to compare what you're experiencing with the issues that you had a while back in personal auto. And I think then, you talked about taking a higher loss PIK or adjusting your loss PIK for severity. But then, the actual trend really hadn't changed in your view. So, if I'm hearing correctly, in this situation, we're talking about higher kind of loss PIK foundations and then an accelerating trend on top of that, is that fair?

We've definitely increased the base year. And we also, last quarter, as we told you, increased the loss trend from there. So, we have increased both in commercial auto. Is that responsive, Larry? I'm trying to make sure...

Yeah, yeah, yeah. Okay, that's great. And then -- and I think Greg talked about pricing and terms and conditions. Can you talk about how terms and conditions might be changing in response to what's going on?

Sure, Larry. Good morning. This is Greg. Yes, most of the terms and conditions activity are happening in the national property space, and that certainly is leaking down into property across middle market. And I think our underwriters start with the first thing, is they look at the total insured value, making sure that we've got the right values on the properties. From there, we'll get into discussions with both distribution and the customer around co-insurance, and that includes both deductibles and sublimits. You can think of sublimits on both flood and earthquake, but those are some of the items that are in the marketplace right now and our underwriters are very involved in pulling those levers.

Yeah. I was thinking more in terms of commercial auto.

Larry, in response to that, given the environmental nature of that, most of the PIK for that is going to come from price. To some lesser degree, it will come from some risk selection, and that's a factor as well. And then, we'll calibrate our litigation strategy and those would be primarily the three levers we use to address it.

Thank you.

Your next question comes from the line of Paul Newsome with Sandler O'Neill. Your line is open.

Good morning. Thanks for the call. I was hoping we could revisit sort of the view in commercial insurance between -- the relationship between pricing and retention. I guess I'm a little surprised at the strength of the retention given you are raising prices. And I'm just wondering if that means that you're not stepping on the pricing as hard as you could or if there's some other dynamic going on there.

Yeah. Paul, again, we're executing one account at a time. And so, we're making the right decisions on price and retention, we think. I think one takeaway that we take from the retention is that there is certainly more room to go. The market is not pushing back on us, which I think is evidence that these really are environmental issues. So, we think the execution is terrific and we think there's more room to go. I think, also, in terms of our customers and our distribution relationships, doing this thoughtfully, slowly , steadily, I think there's a lot of benefit to that. And so, that's part of our execution strategy.

Paul, one thing I would add -- this is Greg -- is those are both headline numbers, both the rate and the retention. Our underwriters are equipped with very granular segmentation, and so we spend more time watching the mix distribution of some of the distressed accounts and the healthy accounts than we do in the aggregate numbers. We're pleased with that execution when we look at that segmentation.

And, separately, I was wondering, as we look at the expense ratio, if there is any impact this quarter from change in contingent commissions that would affect, either this quarter or maybe even next year, the level of the expense ratio.

Paul, it's Dan. I'd say, across the place, generally not. It's been pretty consistent. And contingent commission is a relatively small component of the overall commission mix to begin with.

Great, thank you very much.

Our next question comes from the line of David Motemaden with Evercore ISI. Your line is open.

Thanks for taking the question. Just a follow-up on the changes that were made in general liability. Are you still -- are the changes really still commercial auto related excess or has it spread to other parts of GL? And if you could talk a bit about the changes you made to each portion of that.

David, it continues to be both. Again, I think the right way to look at this is, broadly, over the last year, as we've been addressing this issue, and if you look at it in that context, commercial auto and the excess GL where the underlying event is auto related continues to be the majority of it. But GL has been a not insignificant factor. And, in fact, in this quarter was a bigger factor than commercial auto.

Got it, okay. And just in terms of just putting numbers around it, a peer had come out and said they were seeing severity on the GL side up in the high-single digits. Just wondering, is that sort of what you guys are seeing and is that what you guys are assuming now going forward in your loss PIKs?

We've just never given the severity at that granular level, and I don't think we're inclined to do that. We stop at the segment level where we've given you the 4.5%. And I also think there can be some confusion when we're talking quickly about loss trend because, ultimately, we're trying to get to a loss PIK and there's two things that contribute to that. One is base year changes and two is a change in loss trend. And as I said earlier, over the course of this year, as it relates to liability lines, we've raised both the initial loss PIK, which we refer to as base year and the loss trend. So, those are both up.

Got it, okay. And just a follow-up. The slide in the back, that would imply that what you guys are seeing is more severity related, but are you also seeing just a spike in frequency from higher attorney involvement as well?

No, it's definitely more of a severity issue than a frequency issue.

Thank you. Your next question comes from the line of Josh Shanker with Deutsche Bank. Your line is open.

Good morning, everyone. Thank you for taking my call. So, I wonder if there's any way of getting to a little more granularity on the tort issues. As you've acknowledged you're experiencing and you do look at your competitors numbers and they're not. Is there something going on in the account size that's different between large, middle market and small account on the tort severity side that might make Travelers book look different than some others?

Josh, I don't -- my instinct is no, and that's one of the reasons we shared the industry data, is we don't that -- we believe this is environmental. We don't think there's anything about our book of business that makes us more susceptible to these types of claims. And you turn on the TV, you see attorney advertising. The rate of attorney involvement and the aggressive behavior is up and I think that's going to impact anybody writing liability coverages. So, we don't think there's any reason to think that our book of business is more susceptible than anybody else.

And then, do you have anything you can add to the granularity where you're seeing the biggest tort severity issues from your own experience?

Josh, it's broadly across geographies, business and accounts. I guess, if you're -- again, it's always hard to generalize broadly in a sentence or two because this is a complex issue. We've spent hundreds of hours on this internally. So, it's always difficult to try to summarize in a sentence or two. Broadly speaking, it's probably groups have homogeneous type claims where a potential plaintiff can be reached by television commercial. And so, whether that's commercial auto accidents or slips and falls or things like that, once you get into the bigger stuff, you tend to have cases that are and always have been associated with claimants being represented and aggressive litigation, but, again, that's -- it's a very high level summary of a complex issue.

And then, Elyse kind of asked it, but I just wanted to -- the workers' comp reserve release for the intra-year reserve, is third quarter typically a quarter where you do a comprehensive workers' comp reserve analysis? Should we expect typically that, in the third quarter, we could see resets of PIKs typically?

Josh, it's Dan. Not really. The comp is something that we have enough data and enough information that's in the regular flow that we're assessing work comp reserve levels every quarter, and I've commented on work comp in PYD in earlier quarters this year.

Okay. Thank you for the answers.

Thank you.

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

Yes, thanks. Just a couple of quick ones here. First one, if I kind of strip out some of the noise in the quarter on Business Insurance, it looks like the underlying loss ratio kind of improved, call it, by 40 to 50 basis points. Is that a kind of fair representation of what an earned rate right now is coming through in excess of trend?

That's a business insurance question?

Yeah, Business Insurance. Sorry, yeah. Just making all of the adjustments that you put in the slide, it looks like it's about 40 to 50 basis points of improvement on a year-over-year basis.

Brian, we're looking at the math. Yeah, I don't think it's quite so easy to look at it that way. You're getting to a very narrow view of rate versus loss trend. And I understand why that's so appealing to look at. But the fact is, there's a lot of things that go into margin. And whether it's mix or reinsurance or claims handling or risks, there's all sorts of things that go into that. And so, really hard to look at rate versus loss trend and think you've captured it.

Got you. And then, just one other quick one here. As I look at your outlook for RPC for the Business Insurance here over the next 12 months, what is your assumption with respect to exposure in that figure? Do you expect it to kind of moderate here, be the same?

Yeah. We just don't break that out. There's a lot of estimation that goes into that number. And we have a view on the pieces, but to imply that we've got that level of granularity out a year, that would be a false impression.

Great, thanks.

Thank you.

Your next question comes from the line of Michael Phillips with Morgan Stanley, your line is open.

Thank you. And thanks for the time here. I guess I'll take the pressure off on Business Insurance, guys. Switch over to personal, and specifically personal auto. Your outlook says for margins that are relatively in line with last year. So, I guess, could you talk about what you're seeing there in pricing and loss trends? We're certainly hearing loss trend is on the rise in some segments from competitors. So, kind of want to see what you're thinking there and why we'd expect it to be flat next year?

Sure, Michael. This is Michael Klein. I would say, we see the same industry data you referring to and certainly are keeping an eye on severity trends both in physical damage and in bodily injury. As we've talked about this year, we've tended to see frequency going the other way and offsetting some of those severity increases. Our view of loss trend heading into the outlook is fairly consistent with the trends we've been seeing. The outlook includes an assumption that pricing will continue to moderate in auto, and that's consistent with our strategy to continue to work to return to growing policies in force. So, the broadly consistent outlook has a little bit less earned price in it than we've been running and, again, a consistent view of loss trend. And then, lastly, I would just remind you that for sort of rolling four quarters we do expect a higher combined ratio in the fourth quarter than we saw in the fourth quarter of 2018, partly driven by normal seasonality and driven by the fact that we had an unusually good quarter in the fourth quarter of 2018 as well as some prior-quarter good guide catch-up in that quarter. So, it's a tough comparison, fourth quarter to fourth quarter.

Okay, great. No, thank you for that detail. And then, I guess, second question on Bond & Specialty. What are you seeing in the management liability and kind of maybe some more granular details of kind of what's driving that increase there.

Sure. Thanks for the question, Michael. So, if you look back at where we started reserving at the beginning of 2019, there were definitely some elements of normal loss trend versus rate that impacted how we were reserving there. But when you look at that third quarter re-estimation we did, that was largely driven by an increase in frequency, having to do with things like #MeToo, sexual harassment and, to a lesser degree, securities class action suits. So, that's really what we've seen driving any movement that we've had in management liability there. By the way, I should point out that where we're having elevated loss trending, we're definitely pursuing price in the marketplace. I think you can see that with publicly traded companies and you can see it in various other parts of the marketplace that are impacted by the scenarios I discussed.

Okay, great. Thank you very much for the color there.

Thank you.

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

Hey, thanks. Just had a couple of quick technical ones and then a broader one for Alan. But, first of all, just trying to size this, within multi-peril, what percentage of the claims dollars are usually for liability type of stuff versus property?

Yeah, I don't know that we have that at our fingertips or that we've vetted that number, Ryan.

Got you. And then -- that's fine. The other one I had was just -- it seems like part of this is auto claims and excess umbrella, those type of things. Is there a -- can we get a sense for maybe like what percentage of overall casualty claims outside of workers' comp or something like that can be tied back to something auto related? Is there some way that you think about that? Just trying to think about the auto exposure outside of what you explicitly call commercial auto.

Yes. We definitely don't have that breakout at our fingertips here, Ryan. We can look for that and try to figure out whether we can share that outside of this call, but we definitely don't have that in a vetted way that I think we'd be comfortable sharing.

Okay. No, that's fair enough. And then, again, Alan, I guess this is sort of a broad one. But, yeah, this is, I guess, the third quarter of the last four where we've had, I guess, an increase in the loss PIKs. What would you point us to this quarter that would give us more confidence that that's unlikely to happen going forward? Like, what are you looking at that gives you more confidence, that should give us more confidence?

Yeah. Ryan, I think it was the first question of the call. I wish I could stand up and guarantee that we've got it and this will never happen again. Obviously, I can't do that. I don't think anyone can do it. And I'd point to the magnitude of the shift, which is very recent information, and the long tail line. The lengthening of the claim development pattern really does complicate our ability to assess it. So, it's a complicated process. And it's taken us a couple of quarters to get to where we are. We're going to get another quarter's worth of data in a couple of months here and we'll see where that comes in. There is an incremental level of confidence that comes from the fact that we've now got a couple of quarters strung together and a view on what a new trend line might be. So, that gives us a little bit more comfort. But I can't tell you now where the next dot was going to come in on the chart or what that's going to do to the trend line. It's data we haven't seen yet. I can tell you that we now have four quarters of data and a new trend line. We've certainly reacted to that and we're confident that we're taking the right swing at it. But I don't know what I could tell you beyond that.

But you'd say that the '19 PIKs are now relatively reflective of some of the more seasoned accident years at this point?

Yes. For sure it would be more reflective of the more seasoned accident years. You've got the '17 and '18 accident years, which I -- I think the '17 accident year is, on commercial auto, less than 50% paid. And so, the GL would be even less than that and the '18 accident year would be less than that on both. So, we've got a couple of recent and accident years that are still developing. But the older accident years, yes, as they season, we certainly feel much better about those. And as I said, we now have four quarters where we've -- it's not just another data point. It's another line. And we've reflected that in a way that we feel is very responsible in terms of coming up with our best estimate. But I can't and nobody could tell you what the next data point is going to look like.

Okay, thanks. I'll leave it there.

Thank you.

Our last question comes from the line of Sean Reitenbach with KBW. Your line is open.

Hello. For PG&E, would any benefit from there come through operating income?

Yeah. Ryan, it's Dan. It would. It would come through the same way we would record any prior-year reserve development. So, it will be in core income. It won't affect the underlying combined ratio because it relates to prior accident years.

Okay. And although it's still very strong, the retention rate slipped by a point in 3Q. Would you expect any further kind of -- that to tick down any further as a result of either any kind of non-renewing any business that you've had trouble with or pushing for more rate and losing lose anything there?

I would say the retention rates remains very, very strong by historical standards, particularly an environment where we're getting rate at the level that we're getting it. So, we feel terrific about the retention. We don't project where that's going. So, I don't have a comment on that. But I will say that we like our book of business and our objective would be to keep a lot of it.

Thank you very much.

Thank you.

There are no further questions at this time. I now turn the call back to Ms. Abbe Goldstein.

Thank you very much for joining us this morning. And as always, if there is any follow-up, please feel free to reach out to Investor Relations. Thanks. And have a good day.

This concludes today's conference call, thank you for your participation. You may now disconnect.