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Travelers Companies Inc
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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 19, 2021. 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 2021 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, Chief Financial Officer, and our three Segment President, Greg Toczydlowski of Business Insurance, Jeff Klenk 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 we'll 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 the webcast presentation. Our presentation today includes Forward-looking statements. The Company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance.
Actual results may differ materially from those expressed or implied in the Forward-looking statements due to a variety of factors. These factors are described under Forward-looking Statements in our earnings press release, and in our most recent 10-Q and 10-K filed with the SEC. We do not undertake any obligation to update Forward-looking statements. Also, in our remarks or responses to questions, we may mention some non-GAAP financial measures. Reconciliations are included in our recent earnings press release, financial supplement, and other materials available in the Investors section on our website. And now I'd like to turn the call over to Alan Schnitzer.
Thank you, Abby. Good morning, everyone and thank you for joining us today. We're pleased to report strong top and bottom-line results for the quarter. And the first 9 months of the year, including very strong underlying underwriting profitability and healthy top-line growth. Core income year-to-date of $2.2 billion is about $800 million higher year-over-year, generating Core Return on equity of 11.6%.
Core income for the quarter was $655 million or $2.60 per Diluted shares. Generating core return on equity of 10.1%, despite a high level of catastrophe losses. Our Cat losses were well below our market share, well above the prior-year quarter and the 10-year average for the quarter. Underwriting income of $632 million pre -tax was 6% higher than in the prior-year quarter, driven by record net earned premiums of $7.8 billion and a very strong underlying combined ratio of 91.4%.
We're particularly pleased with the continued strong underlying fundamentals in our commercial businesses. The underlying combined ratio improved by almost 4 points in Business Insurance, and more than 5 points in Bond and Specialty Insurance. As you'll hear in a few minutes from Michael, underlying results in Personal Insurance were impacted by out of frequency returning to pre-pandemic levels, and elevated severity in both auto and property due to higher costs for labor materials. Our consolidated results demonstrate the value of having a diversified group of businesses.
Turning to investments, our high-quality investment portfolio generated net investment income of $645 million after-tax, reflecting reliable performance in our fixed income portfolio and very strong returns in our non-fixed income portfolio. These results together with our strong balance sheet and cash flow, enabled us to grow adjusted book value per share by 10% over the past year. After making important investments for the future and returning significant excess capital to our shareholders. During the quarter, we returned $821 million of excess capital to shareholders, including $601 million of share repurchases.
Turning to the top-line, net written premiums grew 7% to a record $8.3 billion. Each of our 3 segments again contributed meaningfully to the top-line growth. In Business Insurance, net. Written premiums grew by 5% with renewal premium change of 9.9% up more than 200 basis points year-over-year. And near all-time high renewal premium change was driven by continued strong renewal rate change and higher exposure growth.
Importantly, at the same time, retention was also higher. Our ability to continue to drive price change at historical highs while increasing retention reflects excellent marketplace execution and the stability of the pricing environment. In Bond and Specialty Insurance, net written premiums increased by 19%, driven by record renewal premium change of 13.6% and our Management Liability business and continued strong retention. We are also pleased to report strong production in our surety business.
In our commercial businesses, written pricing continues to outpace estimated loss trend, which will continue to benefit margins as it earns in. Given social and other inflation, the frequency and severity of weather-related loss activity, and the low interest rate environment, we expect the pricing environment to remain strong. In Personal Insurance net written premiums increased by 7%. Policies in force in both auto and homeowners were at record levels, driven by continued strong retention and growth in new business.
Before I wrap up on results, I'd like to spend a minute discussing how our leading data and analytics and risk expertise contributed to our relatively favorable loss experience with Hurricane Ida. As I shared in our in our first quarter earnings call, our share of the industry's property cat losses over the past 5 years, have been meaningfully lower than our corresponding market share. And while there's always the potential for us to have outsized exposure to an event, it was no accident that we again outperformed in Hurricane Ida.
Our leading underwriting expertise supported by cutting edge data analytics are key to an effective assessment of risk and reward. For us, third-party models are starting point for our more advanced proprietary cat modeling. At the portfolio level, the insights from our models warned us away from the coast to where Ida made landfall.
Given the impediments to achieving an appropriate risk-adjusted return. In the other states, in Ida's path. We effectively managed risk selection, pricing, and other terms and conditions by putting sophisticated data and analytics at the fingertips of our frontline underwriters. These include robust flood risk scoring, location intelligence down to the parcel level, hail dashboards, and output from our risk control engineers. Within Personal Insurance, we continue to see the benefits from our highly segmented Quantum Home 2.0 products, which is now hold out in more than 40 states.
In the Northeast, extreme rainfall from Ida resulted in significant claim activity for the industry, including from water and drainage backup, which is a coverage we provide in our QH 2.O products. The model underneath the product leverages data and analytics to underwrite and price dot coverage on a very granular basis. In addition to underwriting, data and analytics are increasingly informing our claims handling strategies.
For example, our AI-assisted claim damage detection model was a key part of our Ida claim response. This model uses AI and high-resolution aerial imagery to detect the extent of damage to individual properties as soon as a day after an event. Within two days of impact, we were collecting and analyzing aerial imagery of customer properties along Ida's path as it moved across 20 states.
This enabled us to remotely identify which of our customers properties had sustained exterior damage and effectively organize our claim response. In some cases, we can use this technology to adjust and pay total losses before the customer has even been able to return to their home. We also utilized other virtual capabilities in our IDA response, such as image share and live video capture, on a majority of claims with interior damage.
These leading edge capabilities, enhancing claim experience for our customers by cutting significant time out of the claim process. Expediting an accurate loss assessment and in many cases, eliminating the need for physical inspection. Again, with IDA, we successfully closed 90% of all homeowners plans within 30 days. All of this also results in a more efficient outcome for our shareholders.
As strategic as the data and analytics are, maybe even more important is the culture that brings it all together. Our collaborative approach to developing a holistic, 360-degree view of risk, incorporating underwriting, claims, actuarial risk-control, legal and regulatory inputs is an important differentiating factor in effectively managing risk and reward. That culture is decades in the making and very hard to replicate. Before I turn the call over to Dan, I'd like to welcome Jeff Klenk, president of our Bond and Specialty Insurance segment of the call. I shared last quarter, Jeff is a 22-year veteran at Travelers most recently as a member of Tom Kunkel leadership team and head of our Management Liability business.
Jeff succeeded Tom, following his retirement last month. We're fortunate to have Jeff in the role and you will hear from him in a few minutes. To sum it up, we're pleased with our results for the quarter to year-to-date. Our significant and hard to replicate competitive advantages position us very low and continued to deliver meaningful shareholder value over time. And with that, I'm pleased to turn the call over to Dan.
Thank you, Alan. For our income for the third quarter was $655 million compared to $798 million in the prior-year quarter. For the quarter, core Return On Equity was 10.1% and on a year-to-date basis, core ROE was 11.6%. The decline in core income was driven by prior-year reserve development and catastrophe losses. Recall that last year's PYD, benefited by approximately $400 million of subrogation recoveries from PG&E.
Those unfavorable year-over-year comparisons were partially offset by increased investment income and a higher level of underlying underwriting income. Underlying underwriting income increased 6% to $632 million pretax, reflecting a higher level of earned premium in all 3 segments, and a strong underlying combined ratio of 91.4%. improvements in the underlying combined ratio in both Business Insurance and Bond and Specialty were offset by an increase in the underlying combined ratio and Personal Insurance.
Business Insurance and Bond and Specialty results reflected the benefit of our pricing efforts, as earned price continues to exceed loss trend. We expected a higher underlying combined ratio in Personal Insurance, given that last year's quarter benefited from unusually low auto losses related to the pandemic. As Alan mentioned, the underlying combined ratio in PI was further impacted by higher severity in both the auto and homeowners products.
Greg, Jeff, and Michael will provide more detail on each segment's results in a few minutes. On a consolidated basis, the underlying loss ratio for the quarter improved slightly to 62% compared with last year's 62.2%. The expense ratio of 29.4% was in line with the prior-year quarter and in line with our expectations. We've improved the expense ratio by more than 2 points from where we were 5 years ago.
Having added roughly $7 billion to our annual net written premiums over that period, while maintaining a focus on productivity and efficiency, all while adding significantly to the level of strategic investment we're making to ensure our future success. Before turning to catastrophe losses, I wanted to point out that within our underlying combined ratio. Non-Cat weather was higher than we would have assumed for the quarter, although lower than the unusually high levels we'd experienced in last year's third quarter.
Our third quarter Cat losses were $501 million pre -tax compared to $397 million a year ago. Remember that in last year's third quarter we had a full recovery under the property aggregate catastrophe XoL treaty. In this year's third quarter, we recognized a partial recovery of $95 million from the treaty, $83 million benefiting the Cat line with $43 million in Business Insurance and $39 million in Personal Insurance, and $12 million benefiting our underlying results with 3 million in Business Insurance and 9 million in Personal Insurance. That leaves us with $255 million of potential recovery in the fourth quarter, depending on the level of qualifying losses we actually experienced.
In terms of the level of Cat losses relative to our assumptions. Third-quarter Cats were elevated compared to what we would have assumed for a typical third quarter. Although our losses from Hurricane Ida are well below our relative market share, the sheer size of Ida, on top of the other Cat losses in the quarter, resulted in overall Cat losses that were higher than our assumption.
Turning to prior-year reserve development and Personal Insurance, $30 million of pretax net favorable PYD resulted from better-than-expected experience from recent years in the property line and Bond and Specialty Insurance, $22 million of pre -tax net favorable PYD was driven by favorable loss experience in the surety product line for recent [Indiscernible].years. In Business Insurance, net unfavorable PYD was $108 million pretax. Our annual asbestos review resulted in a charge of $225 million, as the level of claim activity did not decline as much as we had assumed in our previous estimate.
Excluding the asbestos charge, Business Insurance had net favorable prior year reserve development of $117 million driven primarily by better-than-expected loss experience in workers comp across multiple accident years. Net investment income improved to $645 million after-tax this quarter, our non-fixed income portfolio delivered another strong result, contributing $224 million after-tax. As you can see from the detail provided on Page 6 of the webcast presentation, our recent results in the non-fixed income portfolio have been unusually strong, and I would caution you that this level of returns is not likely to continue.
Consistent with our expectations, fixed income returns were down slightly from the prior-year quarter, as the benefit from higher levels of invested assets was more than offset by a decline in yields. For the fourth quarter of 2021, we expect NII from the fixed income portfolio, including earnings from short-term securities of between $425 and $435 million after-tax. For 2022, we expect that figure to be between $420 and $430 million per quarter.
Turning to capital management, operating cash flow for the quarter of $2.5 billion was an all-time record. All our capital ratios were at or better than target levels and we ended the quarter with holding Company liquidity of approximately $2 billion. The market value of the bonds in our fixed income portfolio declined as U.S. treasury yields increased and credit spreads widened during the quarter.
Accordingly, our after-tax net unrealized investment gain decreased from $3.2 billion as of June 30th to $2.7 billion at September 30th. Adjusted book value per share, which excludes net unrealized investment gains and losses, was $104.77 at quarter-end, up 5% since year-end, and up 10% since September 30th of last year. We returned $821 million of capital to our shareholders during the third quarter with $220 million of dividends and $601 million in share repurchases.
Overall, a very good quarter for us with healthy top-line growth, strong, and improved underlying margins in our commercial businesses. Excellent cash flows and a terrifically strong balance sheet. And with that, I'm pleased to turn the call over to Greg for a discussion of Business Insurance.
Thanks, Dan. Business Insurance had another great quarter with strong financial results and terrific execution in the marketplace. Segmenting gold was $558 million for the Quarter up more than 50% from the prior-year quarter. The improved year-over-year result was driven by higher underlying underwriting income. Prior year reserve development.
And higher net investment income, partially offset by higher catastrophe losses we're once again, particularly pleased with the underlying combined ratio of 90.2%, which improved by 3.8 points from the third quarter of 2020, primarily attributable to three things. First. Of up two points of the improvement resulted from third, pricing that continued to exceed loss - cost trends. The other nearly two points resulted from a combination of a favorable impact associated with the pandemic and a lower level of property losses. Turning to the top-line, net written premiums were up 5%, benefiting from strong renewal rate and exposure levels as well as high retentions.
As for domestic production, renewal premium change was once again historically high at 9.9% while retention increased to an exceptional 85%. The 9.9% renewal premium change was up more than two points from the third quarter of last year with strong renewal rate change of 6.3% and continued improvement in our customer's exposure growth. In addition to our granular price execution, we've also focused on careful management of deductibles, attachment points, limits, sub-limits, and exclusions, which can also contribute to an increase in the price per unit of rest. New business was down from the prior-year quarter as we continue to be thoughtful about balancing risks and reward for new business in the marketplace.
For the individual businesses, in select renewal premium change was a strong 9.7% while retention improved for recent periods to 82% underneath RPC, renewal rate change was 4.1% up well over a point from the third quarter of 2020. We're also encouraged with the improving exposure, which was up about three points as the economy continues to reopen it. New business was up a bit from the prior year, driven by the continued success of our new BOP 2.0 product, which is now live in 39 states.
In middle-market, renewal premium change of 9.5% and retention of 88% were both historically hot. Renewal rate change of 6.2% remains strong. As always, we remain disciplined around risk selection and underwriting. To sum up, Business Insurance had another terrific quarter. We're pleased with our execution and further improving the underlying margins in the bus, and we continue to invest in the business for long term profitable growth. With that, I'll turn the call over to our new partner in the room, Jeff Klenk.
Thanks, Greg, and thank you, Alan, for that welcome. I'm very pleased to be here. We built an industry-leading insurance and management liability franchise, and we look forward to continuing to perform, innovate and transform to profitably grow these businesses into the future. Turning to the results, Bond and Specialty delivered excellent returns in growth in the quarter. Segment income was at $174 million, up about 50% compared to the prior year quarter, driven by the impact of higher net earned premium. A significantly improved underlying underwriting margin, and favorable prior-year reserve development.
The underlying combined ratio of 83.4% improved by 5.5 points from the prior-year quarter, reflecting lower pandemic-related loss activity, earned pricing that exceeded loss cost trends, and a lower expense ratio. Turning to the top-line, net written premiums grew an exceptional 19% in the quarter with strong contributions from all our businesses. In domestic management liability, renewal premium change was a record 13.6% driven by record renewal rate change. Retention remains strong at 86% consistent with recent quarters, but down a few points year-over-year.
As we continue to non-renew cyber policies for accounts that don't meet our updated minimum requirements for cyber hygiene. Notably, research indicates that implementing affordable cyber risk mitigation controls, such as multi-factor authentication to prevent the vast majority of rents more to tax. Domestic surety also posted strong growth relative to the pandemic impact to prior-year quarter. In addition, our international businesses again posted excellent growth, including strong management, liability, retention and rate. Both top and bottom line results for bond and specialty were terrific this quarter, demonstrating our thoughtful approach and strong execution across our businesses. And now, I'll turn the call over to Michael.
Thanks, Jeff, and welcome. Good morning, everyone. In Personal Insurance, bottom-line results were impacted by weather, our return to pre -pandemic claim frequency in auto, and higher loss severity impacting both Auto and Home results. Segment income declined by $394 million from the prior-year quarter. $262 million of that decline is attributable to lower favorable prior-year reserve development as the prior-year quarter benefited from the PG&E settlement Dan referenced.
The remaining unfavorable variance was primarily driven by lower underlying underwriting results. Our underlying combined ratio increased by 6.5 points to 95.2%. We were pleased to see our top-line momentum continue in the quarter, with net written premiums up 7%. Automobile underwriting results reflected higher loss levels for the quarter. The combined ratio was 100% and included 3.4 points of catastrophe losses, mostly from Hurricane Ida. The underlying combined ratio was 97% up approximately 15 points from a prior-year quarter, which reflected our unusually low loss activity due to the pandemic.
The underlying combined ratio increased mainly due to claim frequency effectively returning to pre-pandemic levels. In line with the trend we referenced in our prior quarter call. To a lesser degree, higher severity -- higher loss severity impacted the combined ratio as well, as the vehicle replacement and repair costs remained at elevated levels. We believe these profitability challenges are environmental, and in response, we are executing on our plans to file rate increases in about 40 states over the next three quarters.
As we indicated last quarter, it will take time for future rate actions to earn into results. But we do expect to have higher rates in market in several states by year-end. In Homeowner and Other, the third quarter combined ratio increased by 16 points from the prior-year quarter to 109.3%, driven by a 24 point reduction in net favorable prior-year reserve development primarily related to the PG&E recovery from last year. The combined ratio included 17.6 points of catastrophe losses, mostly from Hurricane Ida. Homeowners' catastrophe losses were 4.7 points below a very active prior-year quarter.
The underlying combined ratio was 93.3%, an improvement of 3.5 points over the prior-year quarter, which experienced a very high level of loss activities. That said, the underlying combined ratio was above our expectations, reflecting elevated non-catastrophe weather and non-weather loss activity, both of which included higher severity related to a combination of labor and materials price increases. Again, we believe these trends are environmental and we continue to see price increases in response.
We're short -- Before I shift to discussing production, I'll remind you that looking ahead to the fourth quarter, there tends to be a good amount of seasonality in our combined ratio results by line of business. With the fourth quarter auto losses typically higher and fourth quarter homeowners losses typically lower than our annual average levels. Turning to production, we were very pleased to deliver another strong quarter in both auto and home.
Automobile policies in force grew 5% to a record level, driven by strong retention at 85%, and continued growth in new business, which increased by 8%. Renewal premium change was essentially flat, reflecting the continued impact of the rate increases we filed in response to the pandemic. Domestic Homeowners and Other delivered another excellent quarter, with policies enforced up 7%, also to a record level, driven by retention of 85% and new business growth of 5%. Renewal premium change increased to 8.8%.
In the quarter, we continued to deliver solutions that meet customers where they are, give them what they needed and serve them how they want. A couple of highlights from the quarter include, our new digital self-inspection process for property customers, which improves their on-boarding experience and provides valuable information to our underwriters and Intel will drive our proprietary auto telematics offering, which now has distracted driving as a rating variable in 40 U.S.
markets and Ontario Canada, providing valuable feedback to drivers and continuing to advance our sophisticated pricing segmentation in automobile. We will continue to invest in new capabilities like these for our customers and distribution partners. Despite a challenging third quarter on the bottom line, we remain pleased with our overall performance and we are well-positioned to profitably grow our business over time. Now, I will turn the call back over to Abbe.
Thanks Michael. Turn to your questions.
[Operator Instructions] roster. Your first question comes from the line of Michael Phillips with Morgan Stanley.
Thank you. Good morning, everybody. First question, Alan, I think might be to your opening comments on BI and expect, you listed a number of reasons why price and environment should remain strong. I guess maybe, help us define or think about what you mean by strong and how we can think about maybe margins into next year the back half of next year. We have pricing now kind of close to where loss trends are, so just kind of help think about what those reasons why pricing should remain strong. Should we expect this pricing to, it seems like start to converge with well, loss trends are which obviously could have some impact on margins into 2022. So just comments on what you mean by strong there.
Good morning and thanks for the question. You're very narrowly I think focusing on rate versus loss trend. And by the way, there's still a margin there. And even if you look at your rate over some long historical periods, the rate we continue to get is actually a pretty good number. But if you look at the overall pricing number, I mean, at 9.9, that's, you know, practically an all-time high and there's a lot of margin in that exposure, so we continue to see a nice spread between written price and loss trend and I do think that's the right way to think about it. Nonetheless, as we know what our product returns are, we know what headwinds are, we know what our objectives are in terms of our returns and we know what we need to do, so I think that from here, pricing will continue to be strong.
Now, we've also been getting pretty good pricing for some time now and it's been compounding for a while and so you've got different lines in different places. Some need more help and others. And so, from here the rate of increase is going to be impacted by that. Some lines or the rate of increase will be higher, some will go sideways, some -- there still be an increase, the rate of increase may go down. But overall, we continue to expect pricing to remain strong. I'm not sure we're going to put much more dimension around it other than that, but hopefully that gives you some color that's helpful.
It does, yes. Thank you. Thank you, Alan. I appreciate that. Second question for you or Mike, maybe, on personal auto. And Mike, I appreciate your comments on -- it was more of a frequency backed to preventing a little to a lesser degree the environmental issues with loss severity. So, I guess, do you think the loss severity side there on auto, has it peaked? Will it get worse from here do you think? And how long lasting will that be? I asked that because I wonder if it's to a lesser degree that the 97% core. It's not that much higher than where you were pre-pandemic, 96, 95 in that range. So I ask those questions because I wonder how much rate you think you need in personal auto if those things have already peaked, I'm not sure if they have, or how long they might last? And your comment was there to a lesser degree anyway. So any comments there would be appreciated.
Yeah, sure, Michael -- and it's Michael here. I would -- I would say a couple of things about that. So dimensional that a little bit more for you, the auto underlying combined was up 15 points in the quarter. We say three quarters of that was loss experienced returning to pre -pandemic levels, and about the remaining quarter of that is the trend then increased costs to repair and replace that we talked about last quarter that essentially continued into the quarter.
In terms of how long it's going to last, I can point you to a little bit of external data that might help there. There's certainly pressure on the system. A lot of the costs relates to total losses and replacement costs values for total vehicles, which tracks pretty closely with used car prices. And inside the quarter, we were actually encouraged by the July and August data from places like the Moody's Used Car Price Index that looked like the peak had happened in May and June and was starting to decline in the first part of the quarter.
Now, that data picked back up again in September, and I think it's kick back-up reflects the pressure on the system. You had Ida occur in the quarter. Estimates are that over 200,000 vehicles were destroyed in that events. At the same time, that you have vehicle inventories in the U.S. at historic lows. And so you know, I think we're going to -- we're going to see continued pressure on the cost to repair and replace. Related to supply chain, related to labor, and related to used car parts and prices. But again, that was about a quarter of the 15 points and we will factor that into our underwriting pricing decisions as we move forward.
And I would just add to that, the good news is this is impacting short-tail lines where we can see it very quickly and react to it and the reserves are obviously significantly way less leveraged, given the duration of those liabilities.
Okay, thank you guys. Appreciate it.
Your next question comes from the line of Mike Zirinski with Wells Research.
Greg, good morning. Maybe moving to, focusing on the business segments. In Greg's commentary parsed apart the year-over-year improvement in the underlying loss ratio, and it was noted that 2 points came from a favorable impact from the pandemic. Maybe you could give us more details on that. And I believe that's a more favorable impact versus what you've laid out in previous quarters.
Hey Mike, it's Dan Frey. Just to clarify Greg 's comments of about a 4 point improvement, you had about two points come from current price versus trend, and then 2 points come from the combination of favorable impact of the pandemic and some favorability in non-Cat property losses. You're right in terms of the impact on Business Insurance from the pandemic.
Last year, into the third quarter, we gave you that the favorable impact was about a 0.5 point, and that was the net of direct charges that we took related to COVID I think things like workers comp charges for COVID-19. Somebody contracts the disease and that was more of an offset by indirect impacts, things like lower frequency on commercial auto. This year, you've got a larger net impact, but it's really the impact of the absence of those direct charges. We're not seeing that anywhere near the same level we saw a year ago. But the 2 you're talking about was not just attributable to COVID, it was attributable to the combination of COVID and non-Cat property experience.
Got it. And has any, if we parse through all the loss costs commentary between commercial lines and personal lines, I know there's a lot of moving parts. But would you say on a -- on a 100 thousand foot view that Travelers had kind of an updated view of loss trend?
So a little different between the two in Business Insurance, you've got a lot of moving parts, including mix of business, but we haven't seen a meaningful change in our view of long-term normalized trend, and Personal Insurance, given Michael 's comments we've taken slightly increased view of what we say as our view of long-term normalized trend.
Thank you.
Your next question is from Elyse Greenspan with Wells Fargo.
Hi, thanks. My first question is on personal auto as well. You guys were talking about trying to take some price, I believe you said over the next few quarters. Are you concerned as you look for greater price that there could be some pushbacks from regulators, right? And you've, obviously, loss trend have spiked [Indiscernible], but it seems like you're also looking at 2020, which was an extremely profitable year for the industry. So how do we think about regulators and just the level of price you're looking to take within the [Indiscernible]
Sure. It's Michael. Thanks for the question. And before I address the question, I think I may have misspoken in the script. I think I said that auto RPC was impacted by the rate increases we filed in response to the pandemic. Obviously, we didn't file rate increases in response to the pandemic.
Those were rate decreases, which by the way I think is relevant to your question. So as we are in the conversation with regulators which are active and ongoing as we speak, we're in conversation with them about that loss history. We're also in conversation with them about the actions we took in response, which included rate decreases in a variety of jurisdictions, which included premium refunds to customers in a variety of jurisdictions. And so we're having conversations with them around how we align pricing with loss costs over time. and are engaged in discussions with them about how to view the 2020 loss experience in that context. If I take a step back and think about the process a little bit more broadly, What we would say about the process of getting rate on is that it, you know, it is an ongoing dialogue between us and the regulators.
It's about an exchange of information to justify the pricing that you think you need on a go-forward basis. And generally speaking, what we have found is we've been able to get to a point where we can align price with loss costs over time. You will, you will have some challenging conversations in some jurisdictions and maybe less challenging conversations in others.
To put a little bit of a point on the 40 jurisdictions, we do expect some of those increases to become effective in Q4, and actually, a couple of them literally this month. So we're on the way to getting those increases filed and approved. And then, as we've talked about, it'll take time for them to get written and then earned into the book of business. But we're making progress.
Thanks. And then my second question just goes back, I guess, to the prior question as well. You guys have been within VI at around that 5% overall loss trend for, I think, 6 quarters now. Obviously, it sounds like things have been slow to fully get back to normal with the pandemic. But as of course it started to be open in that anything you guys are paying attention to on the inflation side, as we think about loss trend just as well as expectations going into 2022.
Yeah, as you'd imagine, we're looking at all the data that comes in every quarter and there are some things that are moving up, and there are some other things that are moving down. It varies by line. We've got still some frequency benefit and the commercial auto space. There are some severity in certain elements, but those are things that we are more levered to in Michael's business than we are in Greg 's business in terms of the relative next to loss cost. So we've got our finger on the pulse of all those things and our aggregate conclusion is there's not much of a change there.
And [Indiscernible] I'd add to that. There is nothing unusual about this quarter relative to any other quarter. We're always looking at frequency and severity in every line and usually there's something a little here and there. But again, this is a view of long-term trend and -- so nothing really unusual in the quarter.
Thank you.
Your next question comes from the line of Ryan Tunis with Autonomous Research.
Hey, good morning. I just had a couple from Michael. The first one is, figuring about your auto book is being largely preferred. I guess, in your mind, what are some of the advantages and disadvantages of having a preferred book versus a less-preferred book when we think about the loss trend environment post-pandemic?
Good question, Ryan. I think there's a couple of things there. We generally, I would say, are going to be impacted by commuting patterns that are more related to office jobs. When you think about the general profile of a preferred book. I think the other dynamic you see in a preferred book though is newer vehicles with more technology. And so when you think about them, the cost pressures on repair and replacement costs, that's going to put upward pressure there. And I would say that while we saw I think some differences over the past 12 to 18 months that you could point to in different parts of the country, different books of business in terms of how the pandemic impacted different segments differently.
As we sit here today, the economy is broadly recovering, the country is broadly recovering so you don't see quite as many differences. I don't think geographically or by segment that are driving differences in loss experience across the bit segments of the industry. The other thing that's true of our book of business is, it's heavily rounded and so it's a -- well, we talk a lot about the individual line of business, we certainly look at customers and the total portfolio as we look to manage it.
Got it. And my follow-up is, hearing you say that frequency is back at pre -pandemic levels, I guess I've always thought about pre -pandemic as being a ceiling for frequency where it would return to. Is that how you're thinking about it or based on what you're seeing, the auctioning frequency can run above pre -pandemic levels?
Yeah, it's a great question, Ryan. I would say underneath frequency, we look at driving activity, we look at trips, we look at mix of activity, and a lot of the patterns that we've talked about in the past, we continue to see. So on the one hand, we continue to see whether we look at our own IntelliDrive data, whether we look at Google mobility data.
Again, fewer commute trips. On the other hand, we actually see elevated shopping trips and recreational trips. And so the mix of miles has changed, but mileage broadly, when you look at Department of Transportation data, again, our IntelliDrive data, MS2 sensor data is back to pre -pandemic levels as is frequency. Again, the mix looks a little bit different, but miles-driven trips broadly are back close to where they had been. And so, as we talked about a little bit earlier, we see their frequency return in line with the trends we outlined last quarter coming into this quarter.
Thank you.
Your next question comes from the line of a Jimmy Bhullar with JP Morgan.
Hi, good morning. I had a couple of questions both on the commercial side. First, can you talk about what you're seeing in terms of pricing in some of your remain lines, specifically, commercial lotto, and then workers comp, have you seen a bottom in [Indiscernible] or is it still soft [Indiscernible]? another one.
Yeah. Good morning. Yeah, we continue to see workers' comp, this is Greg by the way, good morning. Workers' comp below the water level and so we had a slight negative with workers comp. Other than that, we continue to be led with excess casualty at Umbrella automobile in property that gives you just a little bit of color, in terms of the range of rate activity from the most positive to least.
Okay. And then what do you think about inflation affecting loss costs in commercial lines? I think Alan had mentioned last year, assuming loss costs were fairly stable, but have you seen inflation begin to have an impact or do you not think that's a factor on the commercial side?
Jimmy, we certainly see it but you've got to start with, what are we seeing relative to our expectations because we certainly expected some levels of inflation. Also on the commercial side, say relative to Personal Insurance, you got to think about the impact on a mix adjusted basis. So you've got the casualty and the property in there. You don't see this cost of goods sold type of inflation so much on the casualty side. And while we did see a little of it on the commercial side, there was an offsetting frequency benefited here; I heard both Greg and David talked about. So it's not that we don't see it, it's not that we're not aware of it, but we expected some and it just doesn't have the same overall impact on that segment.
Okay. And if I could just ask one more. On personal auto, I think you were talking about thinking about raising prices on the call last quarter as well, and it doesn't seem like any of that was in your results this quarter. Have you already started implementing price hikes or is it more of the benefit going to flow through in 2022, just given the timing of getting -- often getting permission and then implementing those?
Sure, Jimmy. I t's Michael, I think first of all, we would not have expected any rate increases to take effect this quarter. As we talked about it last quarter, where we were beginning to the process of seeking rate which means we've got to put together the filing package, we've got a file that with state, we've got to negotiate with state, we've got to get it approved, We've got an agree upon an effective date which is always in the future from the date you get the approval.
So there's a fairly long tail on the front end of any rate filing process up or down. And so we really wouldn't have expected any of those increases to take effect in the third quarter. As I mentioned, we've got 40 plan need over the course of the next three quarters and a couple two or three will likely take effect this month on several, call it another handful will take it back, probably before year end again, all subject to getting approvals from the states that we are working towards those effective dates with.
And then the remainder will be in the first or second quarter of next year. The few that we have likely to take effect in the back half of this year will represent 25%, 30% of the written premium volume we have across the country, so it's a relatively small number, but it should be impactful on a written basis, but again, I'll just caution you, it takes time for that to earn into the book. But we've started and we are making progress.
Okay. Thank you.
Your next question comes from the line of Paul Newsome with Piper Sandler.
Good morning. Thanks for the call, everyone. I want to ask about social inflation and if you believe on how we should think about the mechanism of regular CPI inflation sweeping into the social inflation side of it. Is it something where we should expect some sort of lag there as courts assess the damages overtime.
Paul, good morning. I don't think it's entirely unrelated or uncorrelated, but I think it's less leveraged. I think of social inflation is being driven more by things like aggressive tactics by the plaintiffs bar, and advertising, and litigation finance, things like that. Now, of course, that -- the whole debate on damages, in any case, starts with the underlying compensable damages, and to the extent there's inflation in that, maybe the starting point goes up a little bit, but -- so it's not completely uncorrelated, but also not so leverage.
All right. And then my second question, unrelated auto entire question. There it seems to be efforts in the industry to effectively replace credit scoring with telematics, and that just using together. What do you think of those efforts and is that something that Travelers has a particular view on?
Sure, Paul. It's Michael. Certainly, there are conversations that link the two. I guess I'd start by separating the two, right? There are certainly conversations with state regulators and a handful, I would say, that are talking about and/or actively pursuing the removal of credit scoring as a variable on pricing auto insurance. The two most notable are Washington and Colorado.
Colorado has a bill that was approved by the state legislature, that's in the rule-making process, around removing credit score in that state. In the state of Washington, again, pretty widely followed, but Commissioner Kreidler issued an emergency rule to ban the use of credit scoring in auto insurance. That rule -- that emergency rule was actually just overturned by a judge in Washington earlier this month.
So we're in the process and that -- the overturned by the judge is now being challenged by the commissioners, so there's a back and forth in Washington, those are probably the two most widely viewed views on credit scoring. As respects credit scoring and telematics, what we would say is, first of all, credit is a powerful variable and pricing auto insurance, it's very predictive off claim experience. And if you remove it, then you have subsidization in your rate plan between higher-risk drivers and lower-risk drivers.
And in fact, in the context of a telematics program, the credit score and the telematics data are powerful together. If you're in a situation where you don't have credit and can't use credit, telematics is very valuable, probably becomes increasingly valuable. And in that kind of a world, we're encouraged by the capability we've got, the tools we have, the success of our IntelliDrive program, and the power that it has in segmenting loss experiencing and helping us segment pricing.
It sounds like you're agnostic to use some [Indiscernible]
I wouldn't say we're necessarily agnostic. I think as Michael pointed out, it is highly predictive and, so we support and promote risk-based pricing. But you end up with some subsidization and so it is what it is. The fact is we compete without it in places like California just fine and we'll continue to compete without it. And in that world, having the data and scale to invest in other rating methodologies is important and we think we have that. So I think either way will be just fine.
Thanks folks, appreciate the help.
Thanks Paul.
For your next question comes from the line of Josh Shanker with Bank of America.
Thank you for taking my question. Guess what? More personal auto, I apologize. I'm just wondering, it looks like that used car severity peaked in May and then again in September, and vehicle traffic levels seemed to get back to normal by about May. Yet, the 2Q loss ratio on personal auto was materially higher than the RX of the 3Q [Indiscernible] higher than the 2Q loss ratio. Is there any intra -year development in that? What's there between the 2Q and 3Q loss experience you guys had?
Josh, I would say the difference is precisely what you just described. You talked about driving levels in May, which is partway through Q2, you talked about severity in May, which has partway through Q2. And so, as we talk about -- in the second quarter, we saw a frequency trending towards the pre-pandemic levels throughout the quarter, which means it was below at the beginning of the quarter. And similarly, some of the severity impacts we've been describing really started to impact the results in the back half of Q2 and into Q3. That's really, I think, what's going on there and there's no interim period, our entry year, adjustment to talk about.
Yeah, Josh, it's not a catch-up of our second quarter loss, it looks pretty consistent with where we had coming out of the second quarter. It's really the difference of a full quarter of the higher frequency and severity Q3 versus Q2.
Great, thank you. And your growth looks fairly strong. I think we can all agree that the price is under priced right now. Can you talk about growing your book at a period of time when the price is below rate adequate levels?
Sure Josh. Michael again, as we've talked about pretty consistently. Our goal is to profitably grow the portfolio over time. We remain confident in our ability to do so. And again, as we've talked about, really the profit pressure at the moment really is timing. And it's a mismatch between our ability to get rate filed and approved [Indiscernible] relative to the loss experience we're seeing at this point in time, but we expect that's going to align with loss costs over time.
We've seen movies like this before, right where, where we've written business, we've grown the business, we've improved the profit on that business we wrote over time and so. That's the path we're headed down. As we do start to put more price in the market, could that impact growth on a go-forward basis? Certainly could. But again, we're comfortable with our ability to profitably grow the auto book over time.
Do you think we're --
[Indiscernible]
Yeah. Go ahead, please.
Just to put a finer point on that, we had this experience a few years ago in personal lines and we ended up with a larger book of very profitable business, and we would expect this to play out in exactly the same way. So very pleased with the volume we are putting on.
I'll leave it at that, and thank you.
Thank you.
Your next question is from the line of David Motemaden with Evercore ISI.
Hi, thanks. Good morning. I had just a quick question on the Holdco cash balance. It fell versus last quarter, but still well above your target. I think it was 800 million. Is that still just a function of the debt that you raised? I think it was last quarter. Have you -- you just haven't put that down into the operating companies for growth, or is that sort of excess capital at the Holdco that we can think about to be used for M&A, or share repurchases, or other uses?
David, I'm not too terribly worried about cash at the Holdco at any quarters, and we're really looking at overall capital position and still feeling very strong about that and I think you see that in the capital actions that we took this quarter. The decline from where we were, we also because of the strength of the position that we started with didn't need to bring up as much from the underlying companies. We're not signaling anything there with a variability in the holding Company liquidity, we're really just trying to make sure that we've got what we need to cover, and if we've got a little more than that at any point in time, that's fine.
Got it. Okay. Thanks. And then maybe a question just for Greg. I was a little surprised that the workers' comp net premium written is still down year-over-year. I know you said that the rate is still slightly negative. I guess could you maybe talk about some of the other drivers of the decrease, I would think that there is some wage inflation in there and the exposure base, I would think, is up versus last year. But maybe just talk about the puts intake that takes there and when you think we should start to see some growth in workers' comp net premium written.
Yeah, David. Let me give you a bit of color on what's underneath the quarter of number. Clearly, as I said earlier, we still have a slight negative in rates. So that's going to have a large weight, the overall net rate, and premium. We had strong retention overall if there's an area that that brought the number down was on a new business basis. And when we look into the marketplace and particularly larger accounts for this quarter, where we saw the clearing price relative to our price to risk to make sure that we're getting an adequate value over the long term, we didn't hit on some larger deal. So really, it's a functional disciplined underwriting. So the combination of all those drove that minus 3.
Got it. Thank you.
Your next question is from the line of Brian Meredith with UBS.
Yes. Thank you very much. Just quickly on workers' comp, I'm just curious. Are we getting to a point where maybe we start to see underlying loss ratio start to re-stabilize or improve here given rate versus trend, are we still ways away from that happening?
You know what? Loss trend has been pretty benign in w workers' comp, but it hasn't been negative, it's been positive, and the rate, the overall pricing has been closer to 0, so below that. if you look at a calendar-year basis, that was being equal yet expect some compression. Of course, we've had a lot of prior-year development so the line has been on a -- is been -- if you look back and actually we're more profitable than we would have predicted the time.
And we would have predicted some quarters ago that we would have hit a bottom and made a turn. But again, we've had pretty good results in that line throughout the pandemic and so, I think the outlook is probably going to continue to bounce around, call it 0ish for a little bit longer before it makes a turn. But it will. It'll bounce around, but it will make a turn and go north from there.
Great. And then, just quickly, I know you talked a little bit about cyber and all that's going on there with respect to tightening terms and conditions and rate, etc. I think you said that you're declining in cyber right now. I would've thought this would be a really good time there to maybe stepping the accelerate a little bit and drive some more growth in cyber to maybe give us a little bit more perspective on what's going on there.
Jeff, you want to take that?
Yeah. Thanks for the question, Brian. Cyber flow remained strong and consistent with broader demand in the marketplace, including first-time buyers. Like I mentioned earlier in this elevated risk environment, our hit ratios are understandably down given those dynamics. We've tightened underwriting requirements. Like multi-factor authentication, like I mentioned, we're also aggressively pursuing needed rate on both new and renewal. So that's the dynamic that's still out there in the market in our results.
Got you. So you just pushing harder than the rest of the market. Is that what it is or are people just not buying as much?
You know, it's just a combination of, we're pushing consistent with our strategies and others are executing on their strategies, but it's pretty well known how the cyberdynamic has been in the marketplace.
Brian, I would also add two things. One, we've been very, very disciplined about enforcing minimum cyber hygiene and I don't know that other markets are necessarily as disciplined about that. So when that business leaves us, it's presumably going somewhere. And given the profitability challenges in that line, we're just fine with that.
Great. Thank you.
Your next question comes from the line of Meyer Shields with KBW.
Great. Thanks, I really appreciate you're fitting me in. Michael, can you update us on severity trends in personal auto liability? We've talked a lot about the physical damage side, I just wanted to get a sense of what's going on liability side.
Sure, Meyer. I would say we talked a lot about property damage and liability because that's the place where it's really elevated relative to our expectations. I think on the personal line side, there are certainly is a loss trend in bodily injury liability, but it's much closer to what we would have expected.
Okay. Perfect. And a brief follow-up, if possible. I just was hoping I could tease or parse out that 2 points that Greg had talked about between the weather-related losses and the PI. I'm sorry, and the COVID impact.
I understand that the risk of getting to o granular, we'd rather not parse that out. You could think of them as being fairly equal in terms of their contribution.
Okay. Thank you.
And we have time for just one more question and we'll take that question from Tracy Benguigui with Barclays.
Thank you for fitting me in. Just really quickly on the commentary of that net favorable impact to COVID on Business Insurance. I'm looking here at 10Q and it looks like Travelers benefited from reduced claims settlement activities largely due to the disruption in the judicial system related to COVID-19. So how much of that thought process played into your underlying VI combined ratio improvements this quarter? And could you contextualize how that may change going forward?
And Tracy, it's Dan. So really what you're seeing in the current quarter is the impact on commercial auto, and that's a frequency event. So I think what we'd expect there over time is we get to a full post-pandemic recovery. If things go back to the way that we're pre-pandemic, I don't think we'd expect that frequency benefit to persist. I think the language -- we could take it offline, but I think the language you're reading out of the queue is more specific to the cash flows related to the operations in the quarter, and that would be lower claim payments.
If you look at paid to encourage on a year-to-date basis, it's almost identical to where paid-to-incurred was on a year-to-date basis for the first 9 months of last year, when we were talking about the fact that ports were closed and it was taking a long time to get settlements out the door.
That's helpful. Also, Greg mentioned that you've focused on your deductibles, attachment points, supplements, and exclusion, and that's also really important, rather than just looking at a blunt rate direction discussion. Could you just let me know your view of loss trend or rate adequacy that's driving those underwriting decision in which business lines, those actions are the most evident?
Tracy, I'm not exactly sure what you're trying to get at with that. I think the point we were trying to make is, we are always very disciplined underwriters, starting with risk selection and then evaluating the terms of every single deal that we underwrite, paying attention to all the levers that contribute to price per unit of risk. And so I think that's the point we were trying to make.
Those -- that's important. It's not overpowering to the results in any quarter, but those things compound over time. And to the extent that we are making those types of changes on an individual risk, it will improve the price per unit of risks that's not apparent in the production statistics. And also, that tends to unwind more slowly than read online s over time. But I don't think we meant to make more of it than that.
Okay. So it sounds like just normal course of the business. I appreciate you taking my questions.
Thanks, Tracy.
At this time, I will turn the call back over to Ms. Goldstein for any closing remarks.
Thanks, everyone for joining us today. We appreciate your time and as always, if there's any follow-up, feel free to reach out directly to get [Indiscernible]. Have a good day.
This concludes this conference call. Thank you for participating. You may now disconnect.