Travelers 2Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

11% ROE

“Operating income was $673 million or $1.93 per share. Operating return on equity was 11.04% and we continue to make great progress on lifting our returns, largely in response to continuing very low interest rates and continuing volatile weather. Who would have thought that we’d be talking about a polar vortex in July and at 2.5% ten year treasury in 2014”

Decline in rate doesn’t mean the environment has gotten more competitive

“we just caution everyone from reacting to the decline in the headline number as an indication that the environment generally has become meaningfully and broadly more competitive.”

Retention is best indicator of a competitive environment

“We’ve always said, and have for many years, that retention is going to be the leading indicator of a changing competitive environment.”

In the 90s retention got down to the 60s

“I’ll go back to the last really difficult pricing environment that we had, which was back into the ‘90s, you’ll see retention rates in middle market drop down into the high 60s. And that really defined what was going on, there was tremendous churn in the marketplace. It didn’t happen overnight, but retention rates declined and that followed, that led, if you will, the overall rate dynamic”

Everyone needs to feel good to retain the customer

“the real emotional content behind retention is agent comfortable, market comfortable, customer comfortable, a terrific set of circumstances where everybody feels good and fair and equitable in the relationship. And that will encourage accounts to stay where they are. And that’s a really good thing, it’s good for the accounts by the way.”

The industry has evolved over the last 20 years

“I think much better management in the industry than wasn’t the case 20 years ago. You look at capital deployment philosophies; it’s different than it was 20 years ago.”

“And I’ve listened to other companies and how they report, I don’t think we’re unique in that regard, I think – I listen to other companies and I’m impressed by what I hear and the nature of controls and procedures and the thoughtfulness and I think is a consequence the magnitude – there’ll always be some cyclicality here and there’s cyclicality in every business. But I said, coming close to probably 8 or 9 years ago, I thought that the amplitude on the way up as well as the amplitude on the way down were going to be much more narrow.

I think that was true obviously on the way up we will now see it on the way down. So that’s what I think, and we’ll find out, I think the leadership in this industry has come to understand that attempting to grow market share by marginally changing price, and actually creating share holder value from it is impossible. I think about it all the time, and I don’t know how to do it and I’m not sure anybody else does. And so we’ve all learned within our own cultures and our own environment and our own strategies, how to manage our businesses to create shareholder value, that’s what we’re supposed to do.”

A storm can hit commercial lines unevenly

“when you get into tornado, hail the, the impacts in the commercial business can be really random and volatile.

Personal lines you have a storm and it hits the neighborhood and we can kind of see the claims. In business insurance you can hit our risk or not hit our risk and it could dramatically change the number. So that’s the perspective relative to kind of normal. PI about normal this quarter BI a little bit worse than normal.’