旅行家集團 (TRV) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the third-quarter earnings review for Travelers.

We ask that you hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question-and-answer session.

At this time, I would like to turn the call over to Ms.

Gabriella Nawi, Senior Vice President of Investor Relations.

Ms.

Nawi, you may now begin.

Great.

Thank you.

Good morning and welcome to the Travelers' discussion of the third-quarter 2008 results.

Hopefully, all of you have seen our press release, financial supplement, and webcast presentation released earlier this morning.

All of these materials can be found on our website at www.travelers.com under the investor section.

With me today is Jay Fishman, Chairman and CEO; Jay Benet, Chief Financial Officer; Brian MacLean, President and Chief Operating Officer; Joe Lacher, Head of our Personal and Select businesses; as well as other members of senior management.

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 open it for questions.

Before I turn it over to Jay, I would like to draw your attention to the following on page 1 of the webcast.

Our presentation today includes certain forward-looking information as defined in the Private Securities Litigation Reform Act of 1995.

All statements, other than statements of historical facts, may be forward-looking statements.

Specifically, our earnings guidance is forward-looking, and we may make other forward-looking statements about the Company's results of operations, financial condition and liquidity, the sufficiency of the Company's reserves, and other topics.

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 our current expectations due to a variety of factors.

These factors are described 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 Travelers' operating income, which we use as a measure of profit, and other measures that may be non-GAAP financial measures.

Reconciliations are included in our recent earnings press release, financial supplement and other materials that are available in the investor section on our website, travelers.com.

With that, I will turn it over to Jay.

Thank you, Gabi.

Good morning, everyone, and thank you for joining us today.

Before we get into the specific results, let me start this morning with something of a view from 40,000 feet.

The last several months have been have unprecedented in financial market dislocation and in its impact on the financial services community broadly.

We've seen upheaval at Fannie Mae, Freddie Mac, Lehman Brothers, Bear Stearns and AIG, and we've seen governments all around the world step up and commit trillions of dollars to financial institutions that previously appeared to be pillars of strength.

Given all of this turmoil, the speed with which it has happened, and the number of pitfalls challenging the financial services industry over these months, we couldn't be more pleased with the way Travelers has managed through this dislocation.

The success that we've had has little to do with anything that we've done these last several months, but rather, results from the philosophy and culture that has existed here for a long time.

We are first and foremost an insurance underwriting organization, and the skills to do that successfully are at the highest level here.

Our investment function, as best articulated by Bill Heyman, our Chief Investment Officer, himself, is in business to support our insurance underwriting operations and to do so with an extraordinarily balanced view of risk and return.

That philosophy has kept our investment decisions straightforward and simple and geared towards providing consistent and appropriate risk-adjusted returns over time, rather than responding to the investment idea of the day.

Simply put, we focus on providing quality products and service to our agents and customers, and in building the long-term value of our franchise.

We couldn't be more proud of what we've accomplished, and, in fact, we've come through this as a strong, resilient, well-capitalized company.

The results for this year speak for themselves.

For the nine-month period, we've posted net income of $2.1 billion and a return on equity of 10.9%.

All of our financial strength indicators are at or better than target levels, including our holding company liquidity, now just in excess of $2 billion, which is approximately twice our target level.

For the quarter, we posted operating income of $330 million after-tax, or $0.55 per share.

As we previously reported, the third quarter was meaningfully impacted by $682 million after-tax of storm losses from Hurricanes Ike, Gustav and Dolly.

However, the losses from these storms were consistent overall with our risk models and pricing assumptions, and given our size, storm losses such as these will occur from time to time.

While difficult financial market conditions impacted our net investment income to some extent for the quarter, and Jay will speak about that in a bit, our insurance underwriting operations continue to be pretty much consistent with what we saw in the second quarter and it's very much steady as it goes.

Retentions remained high across virtually all of our businesses and loss costs and rate change generally continued in pattern with the second quarter.

The story, however, is less about the results of the third quarter than the positioning of this organization.

Our underwriting discipline, both with respect to investing and insurance, was clearly evident this quarter.

Our net realized investment losses of $133 million after-tax were quite modest when compared with our overall investment portfolio, and the change in our unrealized losses was driven largely by general changes in spreads rather than issue or issuer-specific deterioration.

As evidence of our underwriting strength, excluding the impacts of catastrophes and net favorable prior-year reserve development, our combined ratio was 91.8%.

As a result of specific initiatives, we continue to see a significant flow of new business opportunities.

We are fortunate to have ample liquidity, capital and the ability to respond to the market.

We are, of course, in the property-casualty business, with all of the risks and opportunities that that entails, but all things considered, even with 20/20 hindsight, there isn't much we would have done differently, and as a consequence, we are as well-positioned as we could be.

We remain committed to producing shareholder value by seeking to achieve mid-teens return on equity over time, and since January 1, 2005, our cumulative operating return on equity now stands at approximately 15%.

We are going to keep our comments very brief today, especially since there really hasn't been much change in the insurance environment broadly, and we will leave ample time to answer any questions you have.

With that, let me turn it over to Jay.

Thanks, Jay.

Let me begin by reiterating that our investment portfolio and our balance sheet continue to be in terrific shape, despite the turmoil that has been taking place in the financial markets.

Page 4 of the webcast shows that we ended the quarter with almost $25.5 billion of common equity, ex FAS 115, and book value per share ex FAS 115 of $43.34, up 5% year-to-date, even after $2 billion of share repurchases and $535 million of stock dividends.

Our operating company capital remains at or above all of our target levels and we continue to generate significant amounts of excess capital and liquidity.

Our debt-to-total-capital ratio was 19.9% at the end of the quarter, compared to our 20% target, which is the midpoint of a 15% to 25% range that derives from our AA ratings target.

Holding company liquidity was $2.1 billion, or almost twice our target of one year's worth of interest and dividends.

And if we choose to, we expect to be able to use internal funds to retire all debt scheduled to mature during the next three years.

We are not reliant on the commercial paper market and participate at a very modest level, generally $100 million or below, only when rates are attractive.

Page 5 of the Web cast shows the composition of our investment portfolio at different points in time, along with certain of its characteristics.

The composition of the portfolio has been very stable in the period shown, with total fixed income comprising 94% and non-fixed income 6% of the total portfolio.

Its quality has been maintained at AA-plus, duration has been very steady, and the below-investment-grade portion of the fixed-income portfolio has actually decreased to only 2.4%.

It remains a very well-diversified portfolio across industries, investment types, and individual issuers.

Having said this, our portfolio is not immune from recent market changes, and in this quarter, we did experience net realized losses of $116 million after-tax, mostly related to impairments of Lehman and a small number of other fixed-income holdings.

The unrealized loss on that portion of our investment portfolio, for which estimated market value is less than 80% of amortized costs, now stands at $270 million, up from $52 million at the end of the second quarter, and mostly in this position for 30 days or less, still a small fraction of both total investments and shareholders' equity.

We have always maintained a very rigorous process for identifying investments for which writedowns should be considered and take such actions when appropriate.

At the end of the current quarter, we had pretax unrealized investment losses of $1.3 billion, compared to a net unrealized gain of $86 million at the end of the second quarter.

This change in unrealized, which while not reflected in net income is reflected in shareholders' equity pursuant to FAS 115, was primarily a result of credit spreads widening broadly during the quarter, and, to a lesser extent, other unrealized losses widely distributed among issuers and not generally reflective of significant issuer-specific credit problems.

I would also like to point out that no single corporate issuer accounted for more than $40 million of the net unrealized loss at the end of the quarter.

We've updated page 6 of the webcast to include additional areas of concern that have emerged this quarter in the financial markets and their impact, or lack thereof, to Travelers.

We dramatically curtailed our securities lending program during the quarter based on current market conditions to where we only have $15 million outstanding.

We experienced no losses in this program during the quarter and we do not expect any.

Also, we are not a party to any credit default swaps.

As the slide indicates, we also remain unaffected by the other areas of market disruption discussed in prior quarters.

As the data on page 7 indicates, both Cats and net favorable prior-year reserve development played a meaningful role in our results this quarter.

Cat losses of $682 million, net of reinsurance and after-tax, which mostly related to Hurricanes Ike, Gustav and Dolly, added 19.1 points to our GAAP combined ratio this quarter.

And net favorable prior-year reserve development of $210 million after-tax, resulting from better-than-expected loss experienced at each of our business segments, reduced our GAAP combined ratio by 6.2 points.

On a year-to-date basis, our GAAP combined ratio, even including the large Cat losses we have experienced during the year, was a very healthy 94%.

Ex-Cats, net favorable prior-year reserve development and last year's timing impact of the change to the fixed value-based agent compensation program, our GAAP combined ratio was 92.5%, an increase of 2.4 points from the prior-year period.

We remain very pleased with the underlying profitability of our businesses.

Page 8 of the Web cast shows the components of operating return on equity.

Fixed income net investment income, less interest expense, remained the major driver of year-to-date operating ROE.

This passage-of-time component produced an 8.7% return in the current period, down slightly from the prior two years, due to lower short-term interest rates.

A much smaller contributor to operating ROE, both historically and year-to-date, is non-fixed income investment income, which produced a very small positive return year-to-date, down from prior periods as expected and due to current market conditions.

Underwriting income provided a return on of 3% year-to-date, down from recent periods due to the very high weather-related losses, which offset healthy underlying underwriting margins that were very healthy and high levels of net favorable prior-year reserve development.

And cumulatively, from January 2005, we produced a 15% annual operating ROE, consistent with our stated longer-term goal of mid-teens ROE.

Net investment income for the third quarter as shown on page 9 was $587 million after-tax, or $137 million lower than the prior-year quarter.

Long-term fixed income related NII of $592 million was unchanged, while the short-term component of fixed income NII was down $27 million due to the lower short-term interest rates.

The major variance between the two periods was the low level of non-fixed income related NII due to lower real estate, hedge funds and private equity partnership returns in the current economic environment.

And finally, our after-tax yield was 3.2% for the quarter.

With that, let me turn the mic over to Brian and Joe for a discussion of the underlying fundamentals of our businesses.

Thanks, Jay.

Before Joe and I get into the business results, let me take a few minutes to give some broad background.

The highlight is that our results, especially as they relate to the top line, remain stable.

I know that sounds out of pattern with the mood around broader economic trends, but our fundamentals are the same ones we've been describing for the last several years.

That is, we are retaining our customers at historically high levels and at close to expiring price, and are seeing a healthy flow of new business.

This stability is partially a function of the markets in which we compete, but is also, we believe, a function of who we are.

That is a Company with solid financial performance whose people are not distracted by franchise-changing events, but instead are focused on consistently executing on our strategy in their marketplace.

Given this dynamic, Joe and I will spend a little less time than usual on the actual numbers and leave more time for Q&A.

Looking at the details on slide 10, you can see that retentions remain high across all our commercial businesses.

The only exception is our international operations, where retention was down from last year due to competitive market conditions impacting our Lloyd's business and the intentional nonrenewal of certain property business in Canada.

The renewal price change data reflects both rate and exposure changes.

Underlying rate changes were consistent with, and in some cases, modestly improved from last quarter.

In the aggregate, exposure change, which fundamentally measures our accounts insurable interest, was also consistent.

We are seeing in a few of our businesses signs of a contracting economic environment.

For example, in owner-operated commercial trucking, we've seen an increase in business failures and in our construction book, although account retentions and new business opportunities have been strong, payrolls are declining.

So overall, a very stable renewal book of business.

Slide 11 shows that our new business dollars are essentially flat with last quarter.

As we've talked about in previous quarters, the overall flow of new business opportunities has been up in nearly all our businesses, and that trend continued this quarter.

For example, flow through our small commercial platforms increased 78% over 2006, while several of our middle-market businesses have seen a 50% increase in submissions over the last two years.

Some of the middle-market increase in this quarter is attributable to volatility among certain carriers, but most is consistent with the positive trends that we've been seeing over the last several years.

Our new product offerings, platform enhancements and strong positioning with agents and customers are driving these opportunities, and this level of deal flow is a clear competitive advantage for the Company.

As we've previously discussed, pricing on new business continues to gradually deteriorate, and as a result, our hit ratio, or the percentage of these quotes that we are writing, has declined.

This demonstrates that in light of the pricing deterioration, we've maintained our underwriting discipline, focusing on insuring new business that meets our criteria.

These dynamics -- that is, significantly increased deal flow with a lower hit ratio -- resulted in a slight increase in net written premium in Business Insurance segment, and you can see the details on slide 12.

Slide 13 shows operating income and combined ratios for Business Insurance.

The adjusted combined ratio was 92.7% for the quarter, 2.3 points worse than the third quarter last year, but still at a very healthy level.

The margin compression is due to the modest decline in pricing and modest increase in loss trends that we had expected.

The atypical property large loss activity, which we have seen in the first two quarters, returned to normal levels this quarter.

On the expense side, after considering the wind pool assessments from Hurricane Ike and the timing impacts of the agent compensation, our expense ratio is consistent with previous quarters.

So overall, we continue to have very solid margins.

Turning to Financial, Professional & International Insurance on slide 14, premiums were down slightly, minus 2%, from last year's quarter.

The adjusted combined ratio was a solid 93.8%, but has deteriorated 4.2 points from the same quarter last year.

This variance is primarily attributable to a small number of third-quarter large losses that exceeded expectations in Lloyd's, as well as development on large losses that occurred in the first half of the year.

Although the large loss experience continues to run ahead of normal levels, the activity did mitigate in the third quarter.

Additionally, I would note that the surety and professional liability loss ratios were on plan and none of the deterioration is from these businesses.

A brief comment on the quarter's storm activity.

Estimates of Cat losses are detailed in the appendix and are obviously dominated by losses from Hurricane Ike.

Our losses for all these storms were consistent overall with our risk models, our market shares and assumptions used in our pricing.

For a little added context, our Hurricane Ike loss assumes a $3.5 billion event for the Texas Windstorm Insurance Association.

So in summary, we believe our Commercial segment performed well and our results remained extremely solid.

With that, let me turn it over to Joe Lacher for the Personal Insurance results.

Thanks.

As Brian mentioned, our results have exhibited a great consistency in recent quarters.

We believe this comes from a focused execution on the key success drivers in our business.

I would like to spend a few minutes reviewing how this played out in Personal Insurance starting on page 15.

We reported an operating loss of $64 million in the quarter, which was down $340 million when compared to last year's third quarter.

Catastrophe activity represents $292 million of this decrease.

We also experienced a decline in net investment income of $20 million.

As you can see on page 15, our expense ratio in the quarter was 35%.

The increase of 7 points versus the third quarter of 2007 was driven by a couple of nonrecurring things.

First, about 5.5 points relates to hurricane-related assessment that flowed through taxes, licenses, and fees, and ultimately the expense ratio.

And second, just under 1 point relates to the accounting impact of our supplemental commission program.

Outside of all of these items, our results are consistent with prior quarters.

You can see this from looking at the change in adjusted combined ratio for the quarter and year-to-date.

Turning to our production results, written premium was up 5% in the quarter, a bit above the 3% growth levels seen year-to-date.

Shifting to page 16, let's look at some of the more detailed production statistics.

Our Property business has been a machine that continues to crank out results despite difficult market conditions.

With a broad slowdown in home sales and a tighter credit market, we would typically expect pressure on the Property production.

Against this headwind, policies in force grew 3% and new business volumes were up nearly 7% versus the prior-year quarter.

Our retention of 86%, renewal price change of plus 6% were strong and consistent with prior quarters.

We remain pleased with the continuing growth of the QuantumHome product and its ability to increase new business volumes.

QuantumHome policies now represent more than 12% of our policies in force.

We're similarly pleased with our Auto results.

Our leading product sophistication, our deep and expanding agency relationships, and our strong business platform continue to enable us to deliver robust results.

New business volume was up nearly 13% and policies in force grew 3% versus the prior-year quarter.

Renewal price change increased from the second quarter to plus 3% and retention remained in line with recent quarters.

QuantumAuto policies now represent more than 43% of our policies in force.

Overall, we continue to make investments in our business, infrastructure and distribution capabilities, to fuel our long-term profitable growth.

Turning briefly to page 17, auto loss trend results remained generally consistent with recent quarters.

Excluding the impact from the broader risk profile of Quantum, our total loss trend in the quarter was essentially flat.

Our frequency declined slightly and our total severity trend increased slightly.

Overall, we remain pleased with the fundamentals of our Personal Insurance business and look forward to building on that success.

With that, I will turn it back over to Jay.

Thanks, Joe.

Page 18 provides updated information concerning our guidance for full-year 2008.

We now expect fully-diluted operating income per share will be in the range of $4.90 to $5.10, which incorporates actual year-to-date results and translates into an operating return on equity of approximately 11.5% to 12%.

We are assuming the continuation of current lower short-term interest rates and the more challenging environment we experienced in the third quarter for non-fixed income investment returns.

Also, notwithstanding our financial strength and liquidity, we are planning for a reduced level of share buyback activity in the fourth quarter.

It feels prudent to allow for some additional capital formation in this volatile environment.

However, depending upon market conditions and how our share price performs, we may change our plans.

This is not to be taken as a significant shift in our capital management strategy.

Our guidance assumes fourth-quarter Cat losses of $92 million pretax, or $60 million after-tax, or $0.10 per share after-tax, no further prior-year reserve development, either favorable or unfavorable, no significant change in average invested assets, ex FAS 115, and after approximately the $2.1 billion of share repurchases for the full year, and a revised weighted average diluted share count of approximately $610 million after the share repurchases and employee equity awards.

With that, let me turn things back to Jay.

Thank you, Jay.

Just one clarification in my prepared comments, please.

I made reference to net realized investment losses of $133 million after-tax.

That, of course, is the year-to-date number.

The number for the quarter is $116 million after-tax, and I certainly didn't mean to confuse anyone; so correcting that for the record.

And with that, Francis, we can open it up and take questions.

Thank you.

(Operator Instructions) Josh Shanker with Citi.

Hi there.

Thank you.

Good morning to you.

Thinking back before the merger of Travelers and St.

Paul, St.

Paul had a reputation for writing some larger commercial business.

I'm wondering, given what is going on in the marketplace, whether the new Travelers has those capabilities and the way you are looking at what could be a market opportunity, what that means for you.

First, I would just make an observation.

That may have been a reputation.

I've not heard it before, but it is not a correct one.

St.

Paul was a middle market and small commercial underwriter, with a focus more on specialty businesses than general commercial, but it was not a large account casualty.

And frankly, when I got there, I'm not even sure it had a National Accounts property business.

So that was not the case.

As it relates to the Company today, our sweet spot remains middle market accounts and small commercial accounts in the commercial arena.

We are not, and we are not a large account casualty writer, broadly speaking, that is.

And the reason for that is that we find it difficult to understand how we can achieve a portfolio outcome when you are dealing with large account casualty business.

Risks tend to exist on an individual name basis and we struggle to get to a portfolio effect.

We do write large account property business; we are a significant writer of large account property business.

And of course, we do a fair amount of servicing, a large amount of servicing for workers' comp exposure to some of the largest, obviously, US-based accounts, workers' comp being a US phenomenon.

I don't think that we would change our culture and our DNA to embrace a line of business that we have struggled with.

We don't dispute that other people have been successful at it, and we certainly don't dispute that other people seem to have figured out a way to manage that business over a long period of time.

But it has really eluded us and it's eluded us for a long period of time.

So we don't have a great focus of expanding our business orientation into the large account casualty world, and particularly any more aggressively than we currently do.

Brian, do you want to add anything?

Yes, I will admit, I am always a little concerned when we kind of broad brush where we are in the market.

And so we do stuff for large accounts, but as Jay said, its property, it is heavily focused on the casualty side on servicing we take some risk.

But in the aggregate, we are much more of a modest player there.

Our sweet spot is clearly middle market business and small commercial.

And broadly, to your question, Josh, I think there is going to be a lot of opportunities in the marketplace as we go forward, many of which will be in markets and in products that we are very comfortable with and are anxious to look at and to look to expand.

We are not fundamentally looking to change who we are and to venture out into things that are on the outer limits of what we've excelled at.

Okay, appreciate that.

And the second question, which might be for Jay Benet, might be quick to answer.

Any interest in expanding your willingness to take risks on the left side of the balance sheet?

Well, I will turn it over to Bill Heyman in one second.

I think the answer, broadly is, that, as I mentioned in my comments, we are a risk and return oriented organization.

And to the extent that returns move to a level that make taking additional risk more appropriate, we are certainly open-minded to doing so.

But it will always be done in the simple and straightforward way that we have so far.

I think notwithstanding all that has occurred in the markets, as we look out across the opportunities we see each day, we find the markets have actually been pretty efficient, and there are not a lot of free lunches being offered.

Obviously, if we see one, we take it.

While corporate spreads have widened, Treasury rates have, if anything, stayed historically low.

So absolute rates on fixed income securities are, by historical standards, not very attractive.

We look at a number of asset classes where we have only toeholds and would like to get bigger, but they, too, have been priced pretty efficiently.

We have a small bank loan portfolio, and the bank loan market has been decimated, but a lot of the loans or credits, one wouldn't want even at these prices.

So we are doing pretty much every day what we have done pretty much every day for the last five years, just seeing what comes across the transom that meets some absolute standards of risk and reward.

Well, I appreciate your answers.

Thank you very much and great quarter despite some difficult times.

Jay Gelb with Barclays Capital.

Thanks.

For Jay, I had a broad question on the cycle turn.

We've heard some chatter among the reinsurers that the combined impact of AIG's dislocations and -- or the broader financial issues in the market plus catastrophe losses are going to lead to a cycle turn in reinsurance as of 1/1.

Do you subscribe to that view?

I'm not sure what your views are on the reinsurance side, but on the primary side, you can address that, if you think there is enough capital that has come out to cause a cycle turn.

Yogi Berra once said it is really hard to predict and especially so when you talk about the future.

I don't know.

I can tell you what our mindset is as an individual company.

How the overall market responds and how other carriers react to it is for them to speak to, and we are not a big enough competitor that any change that we take in the marketplace is going to drive the market in any particular direction.

We are approaching the world as a riskier place today than it was 12 months ago.

And if you recognize that and you try and bring that philosophy to your pricing decisions.

Now, we are always going to support our agents and our brokers and our customers and we are going to compete.

We've done, I think, a very effective job of sorting through and finding opportunities that are priced appropriately, even in a more challenging pricing environment.

But, we sit here, as we do every month, and think about pricing philosophy and it certainly seems to us to be a riskier world.

We will try our best to bring that philosophy to our pricing decisions, but everyone will act with their own view and perspective and the market will be what the market will be.

I just don't know and I don't know -- my crystal ball isn't good enough to predict what is going to be in six months.

Fair enough.

Then on the financial leverage side, with debt-to-total-capital being right around 20% and that being sort of your stated goal, does that constrain Travelers from buying back more stock, or is there maybe a little leeway there to go higher on debt-to-capital?

As I indicated in my remarks, we have a target range, given our target of a AA rating, of somewhere between 15% a 25%.

So we'd never pick these targets, either on the upside or the downside, to be at a constraining level.

So if we were to decide that it would be appropriate to increase leverage by a point or two or three, we certainly have the capacity to do that.

But we have been targeting the 20%.

Okay, thanks, and --

And I would add just one other comment to that, because I do think it is relevant.

We don't -- we try, because obviously the world changes around us, but we have a fundamental philosophy here of not running the Company on the edge.

And what I mean by that is not putting the Company in a position from its leverage capital perspective such that the kinds of events that inevitably happen in the property-casualty industry in the ordinary course would cause us to have to do something dramatic.

We want to be comfortable being able to withstand a quarter of Ike and Gustav and Dolly.

And we always remember that in 2005, it was Rita, Katrina, and Wilma.

And so the notion that we have capacity to lever up to a higher level, yes, that may be the case.

But as we think about how we run our business and the prudent relation -- prudent management of long-term shareholder value would dictate that we shouldn't be running it on the edge.

So I think where we are here is in a very appropriate level and it gives us the flexibility and the capacity to withstand the events that occur in our business.

Fair point.

Thank you.

Ian Gutterman with Adage Capital.

Hi, guys.

One quick financial question and then a broader strategic question.

Have you taken your full statutory dividend capacity for the year?

And if not, how much do you expect to take in Q4?

We have not taken the full capacity from the operating companies up to the holding company through the first three quarters.

And we do have a planned dividend level in the fourth quarter, but we are not straining the capacity to bring capital up to the holding company.

We are operating the company, as we said we have previously, of establishing at the operating companies target levels of capital based on rating agency requirements and risk-based capital requirements of the states.

We're comfortably at or above the targets, and excess capital is swept up.

So it's flowing and we are not being constrained.

Okay.

And then I was almost thinking the opposite.

I was just trying to think how much -- basically, how much you've used year-to-date, just so I have an idea, if I want to try to model out how much holding company capital would be going forward.

How much has actually come up from the operating companies to the holding company?

Yes, year-to-date.

Why don't have somebody else ask a question, and we will give you that information.

Sure.

Okay, the broader question is just there is obviously a lot of distressed properties that are up for sale or may be coming up for sale.

And to the extent you found something just incredibly compelling and the price tag were more than your current excess capital, it sounds like obviously you have some ability to take the debt up, but you don't sound super interested in that.

I'm just trying to think how would you finance something that went beyond your current excess?

Would it be that acquisition is a compelling reason to get a little bit closer to the edge?

Is raising equity at these levels on the table at all, or would it have to just be a super compelling deal to do that?

And then I have a quick follow-up on that.

There is a supposition on top of a supposition there.

Let me go back and kind of reassert, and it's not any different today than it was three or six months ago, what our acquisition philosophy would be, which is we just think it is prudent for any management, every management, to be aware of opportunities in the marketplace, to be knowledgeable, and to look at everything they can, to be aware of what is going on.

In our case, we don't need to do anything.

We have the ability to meet our mission, to create shareholder value by achieving mid-teens return on equity over time, with what we've got.

And the fact that we are a company that's significantly experienced in affecting acquisitions and affecting them successfully, I think we have a well-earned respect for the challenges that any trade brings about.

It brings reserve risk and people risk and culture risk and systems risk.

And you go into these things with eyes wide open, with a really healthy understanding of what it takes.

And so our willingness to go ahead and do something would only be with a mindset that something would be compelling -- in making it easier to meet our mission, easier to meet our mission of achieving shareholder equity with mid-teens return on equity over time.

My presumption would be that any transaction that would meet that threshold, that would be so compelling, it would be not difficult to finance it one way or another.

I think the more challenging issue is, yes, there may in fact be a lot of properties that come up for sale, it's possible.

But the real challenging issue is do any of them matter?

Do any of them make it easier for us to meet our mission?

Once we believe that, then I think that the financing ultimately stands on its own.

We figure out how to finance it in ways that are thoughtful.

I think you get into trouble trying to finance transactions that you can't figure out how they actually add to the shareholder value and then you end up, to some extent, chasing your tail.

So I would love to start off with an opportunity that is compelling and compelling in a way that makes it easy for us to address the financing issue.

Jay, I totally agree with that.

And I guess what I am thinking is we might be in that special environment now, where some properties you thought you would never see or if you had to see it, pay two times book, maybe you can get them for a shade over book, just because they are subsidiaries of bigger companies that have to raise capital.

So I was thinking to that extent.

To be honest, my main concern is unless it was just an absolute steal, I would hope, given where your stock is trading, that raising equity is off the table.

We have a very healthy regard for the cost of equity.

We have an at least as healthy regard for the cost of equity as any owner or analyst of our share price.

We get it.

We are all owners, we are all option holders, we all have a meaningful and significant stake in the Company on an individual as well as a professional level, and we understand it.

So if anyone has any concerns that we have a disregard for the cost of capital, the cost of equity, it is just not us.

Okay, that's what I wanted to hear.

And then just related to that, to finish it off, given that some of these opportunities may arise or maybe you just want to be more cautious in case the markets get worse or there is a Cat or something along those lines, it would seem, frankly, the cheapest way of pre-funding any of these concerns is to go buy more reinsurance, given you've taken your retouches up and reinsurance is still relatively cheap, and certainly the cheapest form of capital in the world today.

Are you considering as you go to 1/1 that maybe you start buying back down again in certain lines of business to give you more capital flexibility for the unknown, whether it be a positive or a negative unknown?

We're -- first of all, as it relates to our Catastrophe cover, we are a July 1 company.

So our Cat cover broadly won't come up until we get into the second quarter of next year.

Right.

I was thinking more of the non-cat treaties.

Yes, our -- the way -- and maybe we should challenge ourselves to make sure that the logic still remains intact -- but we see reinsurance as a long-term cost rather than as a long-term profit opportunity.

If someone can find a dumb reinsurer and introduce them to me, I would be happy to make lunch with them.

My experience is that reinsurers are pretty smart and sophisticated and they know what their product is worth and they charge appropriately for it.

So ultimately, what we are doing is conveying a share of the profits of our business with a capital-providing partner.

If we believe that, then what we want to buy is that which -- when you think of your homeowners, your automobile insurance, you make the same decision that we do.

We want to convey the volatility to someone else that we are not prepared to withstand.

I think given our capital position, our earnings profile and our size, we don't have to worry about conveying more of that volatility to anybody else.

I feel very comfortable with our overall profile.

To the extent that we thought that some additional capital was needed, I think the kind of thing that we are doing in the fourth quarter, meaning scaling back our share repurchases, is the least costly and least permanent way of affecting that.

If someone were to ask why are we doing it, I'm not even sure I can give you a clear answer, other than to say it just feels right in these volatile times to allow for a little more capital formation rather than a little less.

Agreed.

And I guess to that point, Jay, since you bring that up, wouldn't it be a good trade, if you will -- this doesn't say the reinsurers are dumb so much -- but wouldn't it be a good trade to buy reinsurance at a low- to mid-teens cost of capital to be able to buy back your stock while below book, which is probably a 20%, 30% return on capital?

Well, again, there is a presumption in that statement that buying back that reinsurance is a capital-producing event.

It may be a capital-wasting event.

You just don't know.

Ultimately, if you are buying insurance, then the coin is flipped, and maybe it comes up heads and maybe it comes up tails.

Maybe the losses turn out to be better than you anticipate and you've actually spent capital.

So I just struggle with coming to the conclusion that reinsurance buying is fundamentally capital generating.

It may turn out to be.

But ultimately, if the reinsurer is doing their job well, and my experience is they do their jobs well, then the actuarial price that you are paying for is at least more than what it's worth.

I think to your point, there has been a periodic tactic when reinsurance gets particularly cheap, some people go out and aggressively buy more.

That is a tactical decision on the premise that the losses that you are avoiding are more than the premium that you are paying for the reinsurance.

That may or may not turn out to be true.

But at least as we stand right now, it is not apparent to me.

Brian, I don't know if you have any other view --

No, I agree with you.

-- that reinsurance is anything now but actuarially properly priced, not cheap.

So I have some trouble getting to the conclusion that it is capital creating.

Fair enough.

Thank you.

And just to finalize the answer to the question about how much capital was at the operating companies that could be brought up without regulatory approval, and this is the US-based companies, we disclosed in our 10-K for the year that there was about $4.2 billion that was available to be brought up without regulatory approval through the first three quarters of the year.

We've brought up $3 billion of that.

That is not $4.2 billion; that is $4.02 billion.

$4.02 billion.

Right.

Got it.

Okay, thank you.

I'm sorry, you're absolutely right.

Paul Newsome with Sandler O'Neill & Partners.

Good morning.

I wanted to -- two kind of quick questions.

One is, could you talk about what the impact of the security lending program is on your investment income?

Was it really that material, or -- we are just trying to get -- I'm trying to get my arms around this not just for you, but for other folks who obviously did very similar things.

Hi, this is Bill Heyman.

It was not material.

It was at its peak about 600 million in magnitude.

And as we looked at it, our counterparties were people whose credit we were comfortable but not too comfortable.

The collateral we were getting was acceptable, but not as good as we'd like.

And after all that, we were making a few basis points.

So earlier this year, we took it from 600 million to 15 million, and the only reason we left 15 million is we might want to get back into it again.

But it was never a material driver.

Second question, you've recently sold this Unionamerica to, I believe, a company that runs runoff operations.

Could you talk about how that affected your asbestos liabilities?

I know there are 1 billion of gross liabilities.

But I don't know what the net would be or even round numbers.

And does this signal a change in your view towards trying to sell these kind of runoff companies?

I know Travelers was among the companies that posted, for example, ACE's sale of its runoff operations a little while ago.

Well, first, the operations were UK-based, and as I'm sure you know, UK transactions of this nature can be done in a way that limits the credit exposure of the company that is selling, the ceding company.

And so in this case, we have the ability, ex any credit risk, to transfer the underlying liabilities to the buyer, obviously subject to the regulatory approval of the FSA.

We haven't closed yet.

We have a contract; we announced that we have a contract.

So we haven't actually sold yet.

I hope that we will get to a closing.

And I don't think it speaks to a shift in strategy or policy.

This was a situation where runoff liabilities -- and this wasn't enormous; it was sizable, but not enormous -- capture and attract capital -- they have capital to support them -- by conveying these liabilities to someone who views it as a going concern business and is willing to commit the capital to it, it frees up capital for us.

The underlying liabilities were, for all accounts, reserved properly and appropriately.

So it really was an opportunistic transaction to move the liabilities to someone who views it as a going concern, free up capital attached to that business for ourselves and do so at a fair and reasonable price.

I obviously think it is a good thing.

And lastly, I was looking at a survey for, I think, Tillinghast put out on D&O insurance.

And that survey suggested that you folks were actually a leader in selling to financial institutions, D&O insurance.

And is that true?

Is it that big a deal?

Maybe you could just talk about that exposure as well.

Yes, we are just debating here who is going to take on the question.

Why don't we start with Brian, and then we will head over to Alan Schnitzer, who is here as well.

Do you want to start, Alan?

I just missed the question.

Oh, all right.

The question was, are --

Are we a leader in D&O for --?

D&O for financial institutions.

We certainly have a FI/D&O book and we've been watching that carefully.

Are we a leader?

We certainly aren't playing at the larger national levels.

We've been managing that book carefully over the last year or so, looking at both limits and attachment points.

Yes, and I think the key part of that is our limits profile and how closely we manage that, and, you know, obviously, with that limiting our exposure to any one individual --

And I -- let me make sure, because I have I know I garbled this up once or twice before.

Our bank exposure, not our financial institution broadly, but our bank exposure, is significantly driven by our community bank program.

And in that -- that is factually so?

So far so good.

All right.

In that program, approximately 80% of the risks are private.

These are nonpublic companies.

We actually have more of the characteristics on that.

The average size of the limits -- I mean, it's not -- the bank book is not driven by money center banks, investment banks, banks that are actively engaged in the marketing or packaging of mortgage securities.

Again, there are other financial institutions.

There are insurance companies and there are a host of other things.

But our banking exposure is driven by our community bank exposure.

Great.

Thank you very much.

Pleasure.

Okay.

And I just want to clarify something.

As it relates to the securities lending program, you can get from our balance sheets how much of the fixed maturity portfolio was subject to securities lending, and it is $15 million as of September 30.

The numbers have been considerably higher than that.

The June 30 number was $1.6 billion, and you can go back and look at what the values were in previous points in time.

So we have, in this turbulent marketplace, really curtailed this down to almost nothing.

The point is, it was a very small amount of incremental profits.

That's right.

That is true.

It was -- we would describe it -- I think Bill would -- as a -- we all thought it was a conservatively run and managed securities lending program.

It didn't involve leverage, it didn't involve further borrowings, it was a straightforward, traditional securities lending program.

And Bill actually came to me early in the -- about the middle of the quarter and suggested that the ability to act on the collateral, given the turmoil and dislocation that was then in the marketplace in particularly, could be challenging.

The collateral was okay, but if we had to act on it, it could be challenging.

Given the amount of income that it was contributing, Bill made an active decision to say, let's bring the program down and down significantly.

But it was not a material contributor to our earnings.

Great, thank you.

Jay Cohen with Merrill Lynch.

Yes, thank you.

A couple questions.

The first is maybe for Bill Heyman.

The change in the unrealized was, frankly, a lot more modest than we had expected, given what we've seen.

And what we did was we looked at different indices for Corporate bonds, AA Corporate bonds, and for even munis, and we come up with, again, a much higher number.

And again, you are not privy to our assumptions, but I'm wondering if there was something about your business that allowed your unrealized losses to be, frankly, a lot more modest than we've seen from others.

Well -- thanks, Jay.

Actually, we saw your estimate, although obviously not the assumptions behind it.

And when we saw our number, we felt better, having seen your estimates.

I think we have tried in every asset class we invested in to be as high up the food chain as possible in terms of credit quality.

And I think, while we have to benchmark ourselves against indices, for lack of anything better, the credit quality -- the real credit quality of the portfolio was higher than the indices.

And I suspect that accounts for most of the difference.

Also, we missed some of the big blowups, and most of those would have fallen into the realized category.

But nonetheless, there are some credits which have gone down in price, even if not to the point of impairment, in which we are underrepresented.

That's helpful.

And then the second question, maybe for Brian, in the nine months, the underlying combined ratio, ex-cats, ex-development, was worse by about 2.4 points, to a still a reasonable level.

I remember initially when you were thinking about 2008, I think you were thinking for that number to get worse by about a point, and then you increased that a bit.

But it does seem a bit worse than what you've been expecting.

One, is that accurate?

And then secondly, if it is, is it more of a price issue or a claims issue?

Yes, let me -- absolutely accurate.

Let me break it down into the three basic pieces, and then Joe or Jay or anybody, chime in.

The core underlying assumptions around price loss trend friend margins on the business have essentially played out as we expected, across, I would say, our whole spectrum.

And this is broad brushing the thing.

But you can look at our data.

Pricing has softened a little bit, pretty much in line with what we expected.

We expected some loss trend.

And our starting point, our base year has improved a little bit.

So net-net, our margins are about where we thought on the core business.

The large loss activity that we saw in the first half of the year in the commercial business, commercial property, running across all of our segments and a little more of that in the third quarter on the international side, is a piece of that number.

And then the rest is predominately weather-driven issues in Personal Insurance.

And again, we disclose Cat, so it is the non-Cat weather losses that we saw running through our Personal book.

So those would be the major components of it.

Joe --?

That's it.

The weather stuff moves; sometimes you have better years, sometimes you have worse years.

So it was like non-Cat weather, basically?

Correct.

Yes, the combination of non-Cat weather and the large losses that we spoke about in the first half of the year, and to some extent, some of that continuing into the third, those are the two reasons.

You got it right.

We started out with anticipating 100 basis point deterioration in the combined ratio.

We took that up to 1.5 points at the end of the first quarter.

And getting from that 1.5 points now to 2.4 is largely accounted for by these items.

Even a piece of the third-quarter international large loss stuff was also weather-related losses that didn't hit a cat threshold.

So -- but that order of dynamics.

Great.

If I could just squeeze in one more question, and if I can't, just say shut up, but on your auto business --?

-- Depends what the question is, Jay.

It depends on the question.

You may not answer anyway.

On the auto business, certainly there is a big property available.

AIG's Personal Lines business is for sale.

They have said that publicly.

And you are a potential buyer.

And one of the pieces there is the direct auto business.

I know you probably can't comment on this specific one, but in general, how would you feel about entering a direct response auto business, given the potential channel conflicts?

I'll do 30 seconds and I'll ask Joe to comment.

We already do some direct business.

We obviously have for awhile, through our Affinity businesses and certain other direct channels, and we've also, in certain in select states, been advertising in a way to drive some business directly; not a significant portion of our business yet, but already in place.

And it is to your point, it's correct, it at least historically has been described as a channel conflict.

I think most of our agents and brokers understand the realities of what the business is going to look like over the next 10 years, and they understand that and get it.

And what successful companies have done, and there certainly are plenty who have navigated both of those tracks, have done so in a way that leaves the agents and brokers on a level playing field.

And at least as we understand it, were that to become a more important part of our business, that is an important element.

You can't come to market and be adverse to the agents and brokers that have built your business.

You've got to keep a level playing field.

But again, independent of anything related to AIG, we have already been in the direct business to some extent.

Yes, and I would echo all those thoughts.

We've had a relatively significant percentage of our -- not insignificant may be the better way to describe it -- a percentage of our premium that comes from nontraditional agency relationships for some time, and continue to do that.

And we work through all of the conversations with our agents if we -- if we bump into each other.

But we have unfortunately or fortunately, sufficiently a modest market share that those issues don't cause us a lot of problems, and we figured out how to work through it in a way that allows those channels to work together.

But if we were to embrace a direct marketing strategy in a broader sense, we would obviously be forthcoming with our agents and with the brokers.

We would be forthcoming as to what we were doing, and we would describe it in a way that enabled us to communicate to them effectively that we are, of course, protecting and watching out for their interests.

Great.

Sorry for monopolizing the call.

Thanks.

Alain Karaoglan from Banc of America.

Sorry, Alain, if I can ask you to limit to two, please.

Oh, wow.

Jay gets the good treatment, but no, that's okay.

No problem, I understand.

First, I just want to congratulate you on the great job that you've done on the investment portfolio, especially Bill Heyman, in avoiding so far some of the issues that have affected other companies.

Let me interject.

There are some people in St.

Paul, Minnesota, who deserve congratulations as well, especially Dave Rowland.

The questions that I have relate to the surety and D&O business.

I know you mentioned, Brian, in your comments that the losses are in line with your expectations.

But how are you thinking in a weakening economic environment about contract and commercial surety?

What should be what we are watching out for?

Why shouldn't we be that concerned about it?

And on the D&O front, are you expecting pricing to improve, given all the pain that has been there?

And just a numbers question on the tax rate, on underwriting, was it lower than expected?

Around, I calculate 27.8%.

I may have calculated that wrong and can take it off with you, Gabi, afterwards.

Yes, let us come back to the tax rate question with you.

And maybe Gabby could get back to you, unless there is a quick answer; but we will look at that.

Great questions on the surety side.

Clearly, we are looking very closely at that book.

As you all know, we are a major player there, and have been a very, very successful one.

We've spent a lot of time talking about it.

Why don't I toss it over to Alan and let him kind of bring you up to speed on our conversation.

I think the real important point to keep in mind on the surety business is this is something that we have been focused on for a long time now.

This hasn't, by any means, caught us by surprise.

We have been looking at this and actively managing that portfolio, and our credit quality of our contracted book, as we measure it, is at a high by historical standards.

So we feel very good about that business and how it's performing.

I would add, Alain, that one of the things that we've done is to broaden out the input into looking at the business and what we've been doing in it.

We've actually brought folks from Bill Heyman's organization and Bill Hannon, who is our Enterprise Risk person, along with people in the surety business now on a more regular basis, to discuss in a much more robust way the overall credit profile and credit exposures and how they are being managed.

So I think part of this is to recognize that there is real strength in this organization to do credit analysis and credit evaluation, and we are bringing all of those resources to bear into the business on a regular basis.

You also asked about pricing on the D&O book, and obviously we write D&O in lots of lines, so it's hard to generalize.

But if you were thinking about the large FI, the pricing has improved.

Thank you very much.

And I would -- just going back to the last one, I don't -- none of us mean to predict that there will never be a surety loss.

This is not to give you an assurance that there won't be a loss.

That would be, in effect, foolish.

But I think we approach the business and the way that we do it in a very thoughtful way, and we are mindful of it, and have a real healthy respect for the exposure that exists there.

And Alain, I will get back to you on the tax rate.

Thank you.

Brian Meredith with UBS.

Yes, I will keep mine to one question.

Jay, last time -- last quarter, you talked a little bit about inflation out there, and it looks like it's a little different environment now, with oil prices down, commodity prices down.

I'm just curious, what do you think the impact of this current environment is going to have on loss cost trend?

What does loss costs trend look like in the commercial lines area?

There isn't anything that we saw in the third quarter that was in any way meaningfully different from what we had in the second.

If you remember what we said in the second quarter was that while we were certainly mindful of the potential for inflation, we certainly hadn't seen anything at that point that would suggest any kind of a significant spike.

That remains true.

We haven't seen anything that would suggest a real spike.

I do think in the context of -- and again, this is part of our responsibility to manage -- in the overall environment, we've got an existing deficit that is currently projected to get to half a trillion dollars.

We've got the US government making substantial infusions into financial institutions, its impact on the deficit, the dynamic of what a different regulatory regime will have.

It certainly belongs on the list of issues for us to be extremely attentive to and thoughtful about.

I don't think that a reasonable person could dismiss at this point the notion that the likelihood of any accelerated inflation, whether in medical costs or otherwise, isn't a possibility.

So it remains on our radar screen.

Great, thank you.

Vinay Misquith with Credit Suisse.

Hi, good morning.

Could you expand on the opportunities that you are seeing in the market right now?

Since you don't plan to focus on the large accounts, I think the most churn you could see with potential accounts at AIG.

So just curious as to what other opportunities you see in the market right now.

Thanks.

Well, first, I would go back even to before this immediate quarter.

We have spoken for some time that and are middle market business, if you look at the sum of middle market and construction -- and Brian mentioned this again -- the actual submission flow was up 50% from where it was two years ago.

That is just -- to me, that is extraordinarily strong, actually, and really reflects the new product development and the fact that we've become a real market of choice.

Two is the event of TravelersExpress in our small commercial business, which is a real breakthrough in speed and technology in our smallest of small commercial arena, has also precipitated a significant increase in deal flow that 10 years ago we just hadn't seen.

All of those things encourage agents to do more things with us that even extend beyond those two business lines.

Our experience has been the more you do with agents and brokers, the more business opportunities you see from them.

And there is -- that is, I think, partly what we are seeing.

Specifically, in the quarter, people have asked if we'd seen opportunities related to the situation at AIG, I would make a couple of observations.

First, our sweet spots really only intersect to some extent.

You're right, we are not a large account casualty insurer, and AIG has certainly been one of the best large account casualty insurers in the world and deserve all the credit for really running a successful business.

Where we do have some overlap is in our middle markets business.

They are a very strong, very good, effective competitor there, as are we.

We have, since the dislocation related to AIG, seen an increase in flow opportunities to quote on business where AIG is currently the incumbent.

Our sense is that agents and brokers are looking for additional alternatives for their current AIG clients, that accounts that might have not gone to market and simply been renewed, our sense is -- and that is all this is, is a sense -- is that agents and brokers are feeling something of a responsibility to their customers to generate alternatives for them.

And we have seen an increase in opportunities to quote on business where AIG is currently the incumbent.

To the extent it sits in our sweet spot in our middle market business, we're obviously doing so.

That's great.

Thank you.

Terry Shu with Pioneer Investments.

Hi, Jay.

I am now at Pioneer.

Good morning, Terry.

Congratulations.

Thank you.

I think most of the questions have been asked, but let me ask one more on Personal Lines, Personal Auto specifically.

You've done really well and the industry environment, maybe you can comment on that.

It seems like many carriers are able to put through rate increases.

And right now, with the gap that people watch, the underlying cost trends versus premiums, has narrowed quite a bit.

So are we just seeing a much more disciplined market and you're gaining share mostly because you're still rolling out, and you still have a smaller book, and therefore able to gain share?

Can you just comment broadly?

Brian MacLean There is a couple of questions under there, Terry, and I will try to hit them all.

And nudge me if I miss some.

We are, as we observe rate activity -- and of course all of our competitors, in a regulated environment, we put through filed rate increases, so we can go through and see what each other have filed -- there has been a shift in the recent quarter, in recent several quarters towards more increases rather than decreases.

I'm not sure it's as broad as some folks sometimes describe it, but I think it is in line with what we are seeing in those same indices that you're describing that look at the aggregate results.

And you can see it to some degree in our RPC numbers, our renewal price change numbers, which ticked up again in the quarter.

So I do think that is generally happening in the marketplace.

But that is a little forward-looking, right?

Those are filed rate increases

I understand, but now you've got to see -- I was just trying to make sure people understand the dynamic.

Yes.

So that's what happened.

The question of is it a more disciplined market place, that becomes, I think, the forward-looking question.

And you start to say, I don't know exactly what is going to happen.

We've had conversations about what were oil prices going to do, what was going to happen with frequency, how is that going to play out in the marketplace?

And I think that, along with what is going on in the economy, will be somewhat unclear, and we will have to see how that works over the course of the next couple of quarters.

And the only observation there is that the first step is to get filings in place.

Filings actually sometimes translate to real increases and sometimes they don't.

So, what we look at there is what I would characterize as a leading indicator that may or may not develop.

And that is, I think -- just again, I'm trying to -- you're not declaring that rate has any --

I'm just saying what we've seen in the observable data that Terry was referencing is actual rates going -- is rate increases that are actually charged, we are seeing our actual RPC.

And of course, you know, the filings are the filings -- whatever people buy, they're going to buy.

But that is going to be actual -- that will translate into actual dollars.

Who knows what is going forward.

From our perspective in our own business, we continue to, I believe, bring very thoughtful capabilities into the marketplace and we are executing them well.

You know, we spent time before talking to you about our expansion of our agency plant into broader geographies.

That gives us the capacity with almost -- if you thought about it in a retail perspective, we are not just dealing with same-store sales, we are dealing with new stores sales.

And as we open up those new stores, that gives us an opportunity to grow and outperform what you're seeing others doing in the marketplace without having to be unreasonably aggressive inside of those same stores.

And we are seeing the results bear fruit, and we are confident that we can continue to march forward doing that.

And we get a little bit of the effect that Jay was talking about before -- as we bring the strength of our Quantum products to bear, as we bring TravelersExpress to bear, as we bring the strengths of our middle market to bear, there becomes a halo effect of all of the things we do as a place, propelling all of the things we do as a place to be more effective.

And we see that in all of our businesses.

Thank you.

Great.

It looks like the end for this.

Thanks for joining us today and if you have any questions, please contact myself or Andy Hersom in Investor Relations.

Thank you and have a great day.

Ladies and gentlemen, thank you all for your participation in today's conference.

This concludes the presentation and you may now disconnect.