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 will be given instructions for the question and answer session. As a reminder, this conference is being recorded on October 20, 2020. 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 third 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 and 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. 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. We are very pleased to report third quarter core income of $798 million or $3.12 per diluted share, and core return on equity of 13.5%. Our bottom line result this quarter reflects strong underlying underwriting income resulting from record net earned premium of $7.4 billion and an underlying combined ratio that improved 2.6 points to a strong 91.5%. We’re pleased with the underwriting results in all three segments with improved underlying profitability in both business insurance and personal insurance. In business insurance, the underlying result improved due to margin expansion as earned rate exceeded loss trends. In personal insurance, the benefits from lower frequency in the auto business more than offset higher levels of non-catastrophe weather and wildfire losses. In bond and specialty insurance, the underlying combined ratio was elevated consistent with the outlook we shared on the call last quarter. I’ll note that the combined and underlying combined ratios were still under 90%, generating a solid return in a challenging environment. Profitability in all three segments continues to reflect the benefits of our strategic focus on productivity and efficiency, resulting in a [indiscernible] consolidated expense ratio. Core income for the quarter also included catastrophe losses of $397 million pre-tax, which were meaningfully above the 10-year average for the quarter. I want to acknowledge the devastation caused by recent catastrophes. We hope for a quick recovery for all those who have been impacted. I also want to express my gratitude to our dedicated claims team for taking care of our customers during these extraordinary times. Of the 100,000 or so claim notices we’ve received so far this year arising out of the record number of PCS catastrophes in the U.S., our claims team met our objective of…

Thank you Alan. Our core income for the third quarter was $798 million, generating core ROE of 13.5%, both up significantly from core income of $378 million and core ROE of 6.5% that we reported in the prior year quarter. These increases resulted primarily from this year’s favorable third quarter PYD compared to net unfavorable PYD in last year’s third quarter, as well as a significant increase in underlying underwriting profit. More on both of those items in a minute. Our third quarter results include $397 million of pre-tax cat losses compared to $241 million in last year’s third quarter. This quarter’s cats included Hurricane Laura, Tropical Storm Isaias, the severe straight-line winds that impacted the Midwest in August, and several large wildfires in the western United States. The increase in the level of cat activity was even more pronounced than those numbers suggest as our net cat result in the quarter was tempered by recoveries under the aggregate catastrophe XOL treaty. We have recognized a full recovery under that treaty in our third quarter results with $233 million pre-tax benefiting the cat line and $47 million pre-tax benefiting non-cat weather in our underlying results. Recall that last year, we did not have any recoveries under the treaty until the fourth quarter. Of course, the full recovery in this year’s third quarter means that there is no coverage remaining from this treaty as we enter the fourth quarter. The underlying combined ratio of 91.5%, which excludes the impacts of cats and PYD, improved by 2.6 points from 94.1% in last year’s third quarter. The underlying loss ratio improved by 2.4 points and benefited from favorable auto frequency related to COVID-19 and the impact of earned pricing in excess of loss trends, partially offset by an increase in non-cat weather losses,…

Thanks Dan. Business insurance produced $365 million of segment income for the quarter, a significant increase over the prior year quarter with prior year development, underlying underwriting income, and net investment income all contributing to the year-over-year increase. The underlying combined ratio of 94% improved by almost two points, driven by more than a point of earned rate in excess of loss trends. A modest favorable net impact from the pandemic contributed about half a point to the improvement. As for the top line, net written premiums were 1% lower than the prior year quarter with strong rate and high retention mostly offsetting modestly lower insured exposures and lower levels of new business. As Alan mentioned, we are very pleased with the resilience of our top line in the face of the ongoing macroeconomic challenges. Turning to the domestic production, we achieved record renewal rate change of 8.2%, up four points from the third quarter of last year and almost a point from the second quarter of this year, while retention remained high at 83%. We feel very good about the headline number but as we’ve shared before, the quality of the execution and segmentation underneath the headline numbers are just as important. To that point, while we achieved meaningful rate increases in all product lines except workers’ comp, our underwriters are making deliberate and granular decisions with respect to rate and retention on an account by account or class by class basis. Thanks to our focus on continuous improvement of data and analytics at the point of sale, the quality of the execution is as good as I’ve ever seen. New business of $505 million was 9% lower than the prior year quarter. We attribute the decline to lower levels of economic activity as well as careful risk selection…

Thanks Greg. Bond and specialty delivered solid returns and growth in the quarter despite the ongoing headwinds of COVID-19. Segment income was $115 million, a $24 million decrease from the prior year quarter as the benefit of higher volumes was more than offset by a higher underlying combined ratio. The underlying combined ratio of 89% increased 5.4 points primarily driven by estimated losses from COVID-19 and related economic conditions. Given the products that we write, we expect the results of this segment to be impacted in times of severe economic downturn. We experienced that during the financial crisis and we’re seeing elevated loss activity in the current environment. We contemplate economic volatility in our underwriting and in our pricing, and as Alan said, in these circumstances we feel good about the returns we generated in the quarter. We expect that the underlying combined ratio will continue to be elevated at around this level over the near term. Turning to top line, net written premiums grew 4% for the quarter, reflecting strong growth driven by improved pricing in our management liability business, partially offset by lower surety production due to the continued economic impact of COVID-19 on public project procurement and related bond demand. In our domestic management liability business, we are pleased that the renewal premium increased to 8.1% driven by record rate. This marks the eighth consecutive quarter in which RPC is higher than the corresponding prior year quarter. Retention remained at a historically high 90%. These production results demonstrate the successful execution of our strategy to pursue rate where needed while maintaining strong retention of our high quality portfolio. We will continue to pursue rate increases where warranted. Domestic management liability new business for the quarter decreased $14 million, primarily reflecting our thoughtful underwriting in this elevated risk environment. Similar to what you heard from Greg in business insurance, submissions are up while quote activity is down. The bond and specialty results remain resilient despite the challenges brought on by COVID-19. We continue to be pleased with our strong execution and feel confident about our ability to navigate through this challenging environment and continue to deliver strong returns over time. Now I’ll turn it over to Michael to discuss personal insurance.

Thanks Tom, and good morning everyone. In personal insurance this quarter, we are very pleased with our continued execution in the marketplace as we delivered excellent profitability and grew net written premiums by 8%, achieving record levels of domestic policies in force. Personal insurance segment income for the third quarter was $392 million, up $261 million from the prior year quarter driven by the pre-tax impacts of an improvement of $163 million in the underlying underwriting gains and $343 million of higher net favorable prior year reserve development, partially offset by $174 million of higher catastrophe losses that have reinsurance. Our combined ratio for the quarter was 86.4%, an improvement of 11.6 points from the prior year quarter driven primarily by the increase in net favorable prior year reserve development. Higher catastrophe loss experience in the quarter was largely offset by improvement in the underlying combined ratio. The improved underlying combined ratio reflects the continuation of favorable auto loss experience in the quarter partially offset by higher non-catastrophe weather related losses. I’ll discuss both of these dynamics in a bit more detail next. Agency automobile profitability was very strong with a combined ratio of approximately 80% for the quarter. The underlying combined ratio of 81% improved nearly 12 points, continuing to reflect favorable frequency levels. Approximately eight of the 12 points of improvement relate to current quarter favorability. The remainder results from favorable re-estimates of activity in the first half of 2020. We continue to observe lower claim frequency as a result of fewer miles driven in light of the COVID-19 pandemic. For the third quarter, data from our IntelliDrive program indicates that miles driven increased relative to last quarter but continue to be down from pre COVID-19 levels. In response to this continued favorable loss experience, we filed modest…

Thank you very much. Operator, we’re ready to start Q&A.

[Operator instructions] Our first question comes from the line of Mike Zaremski from Credit Suisse. Your line is open.

Hey, good morning, thanks. First question, if we can talk about some of the reserve changes during the quarter. Thanks for all the commentary. I believe, Greg, when you were talking about business--the BI segment, you didn’t mention any additions to general liability, and I believe that had been--you’d been adding to that in prior quarters. Can you confirm if that was indeed the case, and maybe just overall too, Alan or Greg, if you guys can talk about whether your view has changed at all on overall loss expense trend.

Good morning Mike, it’s Alan. Let me start with loss trend and then maybe I’ll turn it over to Dan to talk about prior year development. In the quarter, putting aside for a second the direct COVID losses in the quarter, generally what we saw was favorable loss activity primarily related to COVID, and so think people staying home, less economic activity, lower levels of frequency. As you heard us say last quarter and as you heard us repeat again this quarter, we’ve taken a very cautious approach to recognizing that favorable news. There is still a fair amount of uncertainty, and so we’re going to be cautious about that; but we didn’t see anything in the quarter that surprised us or caused us to think that loss trends were deteriorating. Dan, why don’t you comment on PYD?

Sure. Mike, just to go through business insurance’s PYD just for a second, a quick recap of the summary. It ended up being about $220 million unfavorable all-in, that’s driven by about $295 million, as we said, on asbestos, then there was favorability from BI’s portion of the PG&E settlement, and I said that was worth about 20% of the $400 million, so that’s $80 million of a good guy. That gets you to about 215 compared to the 220, so the other moving parts you could think about are as net offsets, and those are favorable in workers’ comp, unfavorable for a single account in run-off from policies that we issued more than 20 years ago. And then, we didn’t mention the other lines because it was really very modest activity in the other lines, some pluses and some minuses that basically net to zero.

Okay, that’s helpful. My last question is, I guess, in regard to the overall competitive environment. Alan, in your prepared remarks, you talked about expected continuing momentum in the marketplace. I think what we’re trying to get comfortable with is the investment income levels - thank you for the guidance. Clearly, they’re under a lot of pressure, and I think in our shoes, we haven’t been in a firm to hard marketplace in a while, so we’re trying to get comfortable that the pricing momentum in excess of loss trends will continue because it seems like to offset BI pressure, we have to get to meaningful better combined ratios in outer years. Maybe just some more color on if you guys--you know, when you say continued momentum, do you expect pricing to continue moving higher or are these levels kind of good enough for you guys to start chipping away at offsetting some of the investment pressure?

Well clearly, Mike, written rate is ahead of loss trends, so we’re definitely making progress at these levels, and we’re not going to give pricing outlook but we do choose our words pretty carefully. I’ll tell you that the fact of the matter is that for us and for the industry broadly, there are just many lines of business that are not yet rate adequate, and the drivers are clearly environmental. On the loss side, social inflation isn’t going away. We’ve got weather losses, we’ve got wildfires that are burning. As you pointed out, interest rates are lower for longer - that’s going to be a driver of the outlook for returns. We do have some capacity issues in some lines as there are some markets that are pulling back on capacity, so we think this broader environmental--all of these broader environmental trends will continue to provide positive momentum in the marketplace.

Thank you.

Thank you.

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

Hey thanks, good morning. I guess my first question is it sounds like the COVID benefits you’re enjoying are frequency based, mostly short tail lines, so I should take that to mean that you’ve continue to book in lines like commercial auto similarly to the type of loss trend that you thought coming into the year, which I would think would be above your average loss trend, correct?

Yes Ryan, it’s Dan. That’s right. As we’ve said, I think last quarter and this quarter, we’re trying to be cautious in our assessment of the net impact of COVID. There is some benefit in the shorter tail lines, but we’re trying to be pretty cautious in terms of how much of that we recognize in the current accident year.

But in terms of the casualty coverages, as you mentioned, yes - that’s correct.

I totally understand that. Just trying to get some perspective on--clearly we don’t know what frequency is going to be. There could be delays in reported claims, etc., but just from your seat looking at the type of claim activity that’s coming through the door, if that were to hold true, what’s the type of frequency benefit on commercial auto that, I guess, we’re not at this point seeing in results yet?

Yes, you know, we’re reluctant to put a number on that. I think we’re not going to do it, Ryan. Frequency - you know, it does develop, but it develops certainly a lot more quickly than severity does. You know if the phone rings or if the phone doesn’t ring, but I think we’re going to leave it as we recognized some of it because there was enough of it that we couldn’t not recognize some of it, but we’ve been pretty cautious in the assessment.

Got it. Then the other follow-up I had, I guess probably for Dan, is thinking about just the aggregate treaty, I guess it kind of worked this year but is also kind of didn’t, because we’re going into the fourth quarter and we’ve gone through the top. How are you thinking about the strategy about reinsuring cats, I guess headed into ’21? Are you thinking about doing more aggregate cover or maybe going lower? Is that something that we should expect potentially to be a catalyst for next year?

Ryan, before Dan answers that question, I’ll just insert that I think the treaty actually worked just fine. It was the weather that didn’t work so well. Dan, do you want to take--

Ryan, I think we’ll do as we would do for reinsurance in any--going into any year. We’ll make an assessment of price versus risk and then decide what and how much we’re going to buy. I think I’d say in summary, we’re glad that we’ve had that treaty for the last two years. To your question specifically about do we go to a lower attachment, I wouldn’t think so. We’ve got a growing business and if anything, we probably would go naturally to a higher attachment point, just to reflect the growth in the business. But maybe we’ll buy that reinsurance again and maybe we won’t. It will depend how we feel about the risk transfer relative to the pricing that we can get, because again we’re writing with the idea that we’re a gross lines underwriter, and we said a couple years ago it felt like there was a little more uncertainty in the weather environment and so we wanted to have that treaty, and we’re glad we had it. We’ll see how that plays out going into next year.

The other thing I would add to that, Ryan, is--and Dan’s exactly right, we bought that because we wanted to acknowledge the incremental uncertainty that we felt after some wildfire losses, I guess in ’17 and ’18. But as I mentioned in my prepare remarks, we’ve taken pretty substantial steps to try to get that risk-reward in balance, so that would also factor into our view of the value of that reinsurance treaty and the terms we can get it on next year.

Thanks.

Thank you.

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

Yes, thanks. My first one, I guess, is maybe some commentary about workers’ comp. I think that given where interest rates are, at some point we should start to see that line see some positive rate momentum, and that’s an important component. But what are your thoughts on that line right now?

Greg, you want to take that?

Yes, you bet. Good morning, Brian. First, we like our longstanding competitive and economic advantages that we’ve got out of that line, and that’s why we’re the largest writer in it in the U.S. Sure, there’s a little bit of pricing reductions going through that line right now and that always puts some pressure on existing margins, but we aren’t standing still. We continue to invest in our claim practices specifically around medical management sophistication, and our underwriters, we’re always giving them new tools and new insight to make sure our risk selection and our renewal segmentation offset some of those price reductions. Workers’ comp is just one piece of our portfolio. As we remind you all the time, we’re more of an account solution than an individual monocline writer, and we’ll continue to write our customers with accounts in additions to workers’ comp, so we continue to feel good about the portfolio and the future of that line.

That improvement in select, was that due to comp maybe getting less competitive, the rate in select?

Well, both select and middle market are clearly going to follow the linear trend of the bureau’s loss cost recommendations, and so in the select business where it’s more of a flow business, where you file that rate structure, you feel it more there than you would in middle market where you have experience mods and discretionary pricing, and you look at the individual exposure rather than file it at a state level, so a little more sensitive to the reductions in select than you would see in middle market.

Great, then just one quick follow-up for Dan. The aggregate cover this quarter, is it possible to break out how much of that benefit is non-cat weather versus cat losses?

Yes Brian, I gave it actually in my prepared remarks.

Oh sorry, I missed it.

It’s quite all right. We said $280 million was the total recovery, $233 million went to cat and $47 million went to underlying.

Got you, and that’s largely in the personal lines?

The split is a little different between the two. The cat split is about 50/59 PI/BI. The non-cat split goes more like 70/30 PI/BI.

Great, very helpful. Thank you.

Sure.

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

Hi, thank you. Good morning. My first question is also on the aggregate cover. Given that you guys have exhausted that cover, and this is a comment that is specific to business insurance, how can we think about the improvement within the underlying loss ratio that you could see there in the fourth quarter? I guess we could expect some kind of headwind from non-cat weather, just given the absence of the aggregate, or how should we think about the fourth quarter?

Elyse, it’s Dan. The aggregate is, as I just said in response to Brian’s question, is not a big deal to the underlying or business insurance in the third quarter, so it got about 30% of the $47 million that was non-cat, so you could think about that for BI as not being more than 20 or 30 basis points in terms of its impact on the quarter.

Okay, so if we adjust BI for that and then also for the COVID benefit that you guys pointed out earlier, is that a good type of run rate to think about for the margin improvement that we could see in the fourth quarter?

Well, I don’t think I’d expect the COVID impact to cease as of September 30. Certainly the cat recovery, the treaty recovery is all contained in the third quarter and you could take that out for sure. I’m not sure anybody knows what exactly the impact of COVID is going to be in the fourth quarter.

Or what weather volatility is going to look like. I think we’re going to get away generally from trying to forecast margins, but happy to take modeling questions offline if that’s helpful, Elyse, to the extent we can.

Yes, and then my second question was on the expense ratio. Dan, I think you said that 30% was kind of a good run rate, but as we’re thinking--and maybe this is less guidance, but I think you guys did guide with at least that, as you’re getting a good amount of price and that’s earning in, should we expect that we could see some improvement in the expense ratio just due to the denominator, or is it counterbalanced by some investments that you pointed out that you guys have been making internally?

I think those are the considerations, Elyse, that will go into what it ends up being. I do think to the degree that we can get some bottom line growth, we would be in a position to continue to see some leverage on the expense ratio. But as we’ve said a number of time over the last couple years, what we like about productivity and efficiency that we’ve generated is it gives us the optionality of whether we make additional investments in places that we feel are going to provide a bigger bang for the buck down the road, or let some of that come through the bottom line. All it was really trying to communicate was that we don’t--we’re not seeking a dramatic change in the expense ratio from where we are right now.

Okay, that’s helpful. Thanks for the color.

Thanks Elyse.

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

Yes, good morning everybody. Two unrelated questions. The first one is about surety, and can you tell us a little bit about the premium volume - it looked pretty reasonable in the bottom, especially business. What are we seeing in terms of COVID economy for construction starts and whatnot?

This is Tom, Josh - good morning. When you think about surety, if you break it up the non-construction and the construction side, our regular non-construction surety is holding up quite nicely, but with all of the decline in tax receipts and the difficulties that various public bodies are having funding public works projects, that’s what is really driving the drop-off in surety written premium. You know, we will have to wait and see what the federal government does with any stimulus that might involve construction, because certainly states and other entities have shovel-ready projects.

Is there implication for things that have already begun construction? Is there a risk that we start seeing issues with surety claims because they’re not able to be finished?

They’re two different issues. As far as the projects stopping, unless they’re ordered to stop by government authority, I wouldn’t expect to see a project that is ongoing stopping. Then as far as the slower economy causing additional defaults, that certainly is possible. It really depends on the contactors’ and the surety’s portfolio and how sound their financial position was going in, and how they handle pursuing work or not pursuing work and shrinking the size of their company when times are lean. We take a lot of pride in our contractors when we manage that portfolio, and we think different sureties will perform differently throughout this.

Josh, I’d just add to that, that we’re underwriting that commercial surety book, the construction surety book today the same way we did in the financial crisis, and it performed pretty well through that. We can’t give any assurances - who knows, but we feel pretty good about our underwriting practices and the people who are making the decisions to put business on the books.

Yes.

Then a philosophical question. If we go back in time maybe 10 years, I don’t know when, when you came up with the Travelers’ definition for catastrophe, and of course it varies from the PCF definition, it seems as time goes on, the risk associated with non-cat weather gets greater and greater in terms of volatility on your margin. Is the variance between your definition and the PCF definition still useful, or have we gotten to a point where the reasons for that difference are starting to create a certain volatility in results that we wouldn’t otherwise hope to see?

Josh, we think about that a lot, so I appreciate the question. Maybe someday offline, we’d love to get your thoughts on it. Our view is from an economic perspective, the losses are going to be what they’re going to be, whether they get reflected in a cat line or in an underlying line. Frankly, we report the numbers we way we manage the business, and we think that there is a level of loss activity that is defined as a PCF event that is in a working layer, if you will, and that ought to be managed day in, day, out, year in, year out by the underwriters that are managing it, as compared to a catastrophe loss which we obviously define as a higher level which gets managed and addressed over a much longer period of time. We think it’s the right way to manage the business. We think it’s the right way to talk about the business internally, and we make the decision to talk about it externally the same way we manage it internally. I get that it might from time to time cause some modeling issues or definitional issues, but we think the consistency and the thoughtful approach to managing it is sort of the right way to run the railroad.

Thank you.

Thank you.

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

Hey, good morning. Thanks for the call, for the answers. I was hoping you could hone in on the competitive environment in the auto insurance business in particular. We’re seeing in the market different things from the rate environment. Obviously you’re doing what you’re doing, but was it a materially more competitive market today than it was recently, and--and I’ll just give you my follow-up question, which is I’d like to know how that competitive environment links up with what you’re doing in the home insurance business, where you’re clearly growing and my sense is the home insurance business is pretty much an outright hard market, so a different situation. Those are my two questions.

Michael?

Thanks Paul, it’s Michael Klein. On the competition in auto, certainly we are seeing market rates drop, and I think it’s fair to call it an intensifying competitive environment. That said, for the most part, notwithstanding some of the headline numbers you see from some key competitors, it’s still a relatively moderate adjustment in personal lines auto pricing, and from our perspective largely reflective of the improvement in experience in the line, some of it COVID related but, frankly, some of it consistent with longer term trends of favorable frequency that we and other competitors have talked about. In terms of our ability to compete in that environment, as I mentioned in my prepared remarks and you see in the webcast script, we’re pleased with our improving [indiscernible] growth in auto as we moderate pricing, again intentionally to keep pace with those loss trends. Again as I mentioned in the prepared remarks, that does include taking some price decreases in a handful of states to, again, match premium to loss, pricing with loss experience. That’s sort of our view on the PI competitive environment. Jumping to your second question about home, I would agree - if you look at the personal insurance industry right now, it’s a little bit of a tale of two cities, right? You’ve got improving loss experience and moderating frequency in auto putting downward pressure on prices. You’ve got a lot of what we’ve been talking about here this morning - catastrophes, non-catastrophe weather, there are still folks in the industry talking about non-weather water losses as well, but the pressure on loss costs in the property business is upward. We’re pleased with our progress in RPC in property. We’re pleased with the performance of our Quantum Home 2 product as we’ve rolled that out, and again as we look at the property market in personal insurance as we’ve described it, our objective is to grow property while improving profitability, and that’s the path we’ve been on and we’ll continue to be on.

I guess what I was trying to ask is, how much is the link between the willingness to grow in home versus the auto?

I would say we look at it as a portfolio. Our strategy is to be a portfolio provider and work with our partners to provide total account solutions to customers, and so we are actively seeking to grow both lines and, again, at target returns.

Great, thank you. Appreciate it.

Thanks.

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

Hi, thanks. Good morning. Just had a question just on NII and the impact it has on ROE for the firm. The NII guide of 420 to 430 after tax per quarter, do you think that you can get enough margin expansion to offset the NII drag to keep ROE stable in this environment, and is there enough pricing and margin expansion underneath where you can actually improve ROEs in this interest rate environment?

Yes well, we think the answer to that is yes, and if you look at written rate versus loss trend, margins are improving from here. We’re not going to give guidance so I’m not going to predict whether we will or whether we won’t, but certainly interest rates and investment income are an input into our pricing model, and so there’s certainly a very direct link between the investment return we’re getting on the product and the price we’re charging for it.

Okay, great. Thanks. Then just another follow-up - you know, you mentioned, I think Greg mentioned getting rate in excess of loss trend of over a point in BI. I guess I’m just wondering if you could elaborate a bit on what gives you confidence that you’re getting rate in excess of trend, just given the uncertainty around the loss environment, courts being closed, and just generally the unpredictability of losses in the current environment.

Yes, so just to be clear, we look at rate versus loss trend on a written basis, and that’s the rate number you see in production statistics, and we’ve shared before our view of loss trend. That one point was sort of the earned impact of rate and earned loss trend, so two different bases there. You know, at this point where we’ve got rate in excess in 8% and we’ve got loss trend which we shared last quarter we view on a long-term basis at 5%, yes, there’s some uncertainty but that gap is big enough that we feel some confidence in that. It’s true that in the circumstance like this where you’ve got a disruption in the economy and some disruption in the data coming through, and in the claim process there’s a little more uncertainty than usual, but as I shared previously, what we’re seeing in losses is actual favorability. Again, not perfect clarity into it and it’s going to take some time for us to get more clarity and for that uncertainty to resolve, but the thing that we’re not reacting to is favorable news, not unfavorable trend.

Our next question comes from the line of Yaron Kinar from Goldman Sachs. Your line is open.

Hi, good morning everybody. First question around workers’ comp, clearly--or I’m assuming there is a frequency benefit from non-COVID claims; on the other hand, I would think that that frequency benefit could ultimately result in some severity increase further down the road. Is that a fair way of thinking about it, and if so, how are you thinking of the loss picks with that dual dynamic?

It’s certainly a possibility, and we contemplate that. Yes, there is some favorability in non-COVID related frequency, but we do contemplate when we think about longer term trends and when we think about the profitability of the product, that there could be down the road some increased severity due to really delayed access to healthcare, so we do contemplate as a possibility.

And is that reflected in the picks already or is that something that you’ll be thinking about as you move into 2021 and beyond?

It’s Dan. I’d say both, which goes to the comment that we’ve made a couple time about being cautious in our view of the net impact of COVID, and we’ll continue to consider that as we think about the product on a go-forward basis.

Got it. Then Alan, I know you and the firm, you’ve been vocal about social inflation trends, particularly in commercial auto the last couple years. With courts being shut down, now starting to reopen, are you seeing any change in the trend or is it too difficult to tell, just given all the COVID-related noise today?

I guess what I can share is we didn’t see anything that caused us to believe that there was any deterioration in those trends, and what we saw was, again as I said a few times, favorable. We think the extent to which it’s favorable is a temporary phenomenon, so I guess that’s how I’d answer the question. Nothing in the quarter that caused us to think anything was deteriorating.

Yes. At the same time, we certainly don’t think that social inflation has gone away, and so our long-term expectation is that the sort of elevated levels of losses that we’ve seen related to social inflation probably persist.

Got it. Thank you for the answers.

Thank you.

Our next question comes from the line of Jimmy Bhullar from JP Morgan. Your line is open.

Hi, good morning. First, I just had a question on pricing in the workers’ comp line - obviously it’s been declining. Are you seeing any signs of stability in that, or what are you views on where that’s headed?

I think, Jimmy, I’d repeat what we said last quarter, which is when we look at our data, we look at the data coming out of rating bureaus, we would think that we are somewhere near an inflection point. Whether it’s now or in the coming quarters, not really sure, but we would expect in the relatively near-ish term for that pricing to come back to negative, and then turn positive. It’s impossible to pick the exact quarter or date that’s going to happen, but that would be our near term outlook.

Okay, and then you mentioned you’ll evaluate price versus risk on reinsurance. It seems like the reinsurance prices are obviously going up a decent amount. Any sort of initial indications of your views on price versus risk, given what’s going on in the reinsurance markets versus last year?

Yes, we certainly expect reinsurance pricing to go up - that’s one of the factors that’s driving our pricing and the pricing generally in the primary market going up, and we think that’s going to persist. I guess the thing I would add as it relates to us is we are, as we’ve said many times, a gross line underwriter. We like our underwriting, we intend to keep it, and so compared to many of our--many in the industry, we buy on a relative basis less reinsurance, and frankly we could buy even less than we do. We could buy a little more, we could buy a little less depending on the risk and reward that we see in that purchase. To the extent that we’re relatively less reliant on reinsurance than others, the fact that reinsurance pricing’s going up is probably a benefit to us.

Okay, and then just lastly, what are some of the things that you’re watching to determine whether to start buying back stock again?

I think Jimmy, there’s still overall economic uncertainty, right, so even as we sit here today, what’s the depth and duration going to be of economic downturn, is there going to be a second dip in the economy, how quickly are COVID cases going to be brought under control, how quickly are things going to reopen, there’s just still a lot of uncertainty that could impact both our top line and the loss environment in which we’re operating, so we’re choosing to be a little cautious here still. Clearly through the third quarter, on top of all that, we had a very active cat quarter, so it just didn’t feel like the right time to be restarting buybacks.

Okay, thanks.

Thank you.

We have time for one further question. Our final question today will come from the line of Meyer Shields from KBW. Your line is open.

Great, thanks. I think it was Dan before - and I apologize for not knowing for sure - that talked about how you were taking a conservative view of accident year loss picks in light of uncertainty, and only recognizing the frequency benefit that you had to. Was there a sort of similar approach taken to reserve reviews in the quarter?

Meyer, it’s Dan. I’m not sure I quite understand the question. The reserves will be a result of the loss picks that we made in the current accident year during the quarter.

Right, so if I understand correctly, there is an overall conservatism because of the fact that things are developing differently as we work our way through COVID and the economic ramifications, and I’m wondering whether that conservatism had an unusual impact on the selections you made with regard to reviewing prior period reserves as well.

Yes, I wouldn’t think so. I think the comment that Alan just made a few minutes ago around the impact of courts being closed and settlements being down, we see some disruption in the data but we’re not taking that as a favorability in the development patterns that we’re assuming on a long-term basis.

Okay, that’s helpful. A second follow-up if I can, really quickly. How should we think about the impact on return on equity or on indicated pricing if corporate tax rates go up?

Taxes are an input in the income statement, like any other expense, and so it flows through the models.

Yes, so that would be one of the many things that gets factored into our pricing. Obviously it wouldn’t just impact us, it would impact the economy more broadly, and as Alan said a bunch of times, I think if we feel like we’ve got a level playing field with our experience and our risk section expertise, we’ll do just fine. But for sure, it will be an input into what the pricing environment needs to be going forward.

Okay, fantastic. Thank you so much.

Thanks Meyer.

I would now like to turn the call back to Abbe Goldstein for closing remarks.

Thank you all very much for joining us this morning, and as always, if you have any follow-up, please feel free to reach out to Investor Relations. Hope everybody has a good day. Thanks.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.