Gabriella Nawi - Senior Vice President, Investor Relations Alan Schnitzer - Chief Executive Officer Jay Benet - Chief Financial Officer Brian MacLean - Chief Operating Officer Bill Heyman - Chief Investment Officer Michael Klein - President, Personal Insurance Tom Kunkel - President, Bond & Specialty Insurance Greg Toczydlowski - President, Business Insurance

Kai Pan - Morgan Stanley Elyse Greenspan - Wells Fargo Jay Gelb - Barclays Jay Cohen - Bank of America/Merrill Lynch Meyer Shields - KBW Sarah DeWitt - JPMorgan Brian Meredith - UBS Paul Newsome - Sandler O’Neill Josh Shanker - Deutsche Bank Larry Greenberg - Janney Montgomery Scott

Good morning, ladies and gentlemen and welcome to the Second 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 July 20, 2017. At this time, I would like to turn the conference over to Ms. Gabriella Nawi, Senior Vice President of Investor Relations. Ms. Nawi, you may begin.

Thank you, Kelly. Good morning and welcome to Travelers’ discussion of our second quarter 2017 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 Investors section. Speaking today will be Alan Schnitzer, Chief Executive Officer; Jay Benet, Chief Financial Officer; and Brian MacLean, Chief Operating Officer. They will discuss the financial results of our business and the current market environment. They will refer to the webcast presentation as they go through prepared remarks and then we will take questions. In addition, other members of senior management are in the room, including Bill Heyman, Chief Investment Officer; Michael Klein, President of Personal Insurance; Tom Kunkel, President of Bond & Specialty Insurance; and Greg Toczydlowski, President of Business Insurance. Before I turn it over to Alan, I would like to draw your attention to the explanatory note included at the end of the webcast. Our presentation today includes forward-looking statements. The company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are described 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 that are available in the Investors section on our website. And now, Alan Schnitzer.

Thank you, Gabby. Good morning, everyone and thank you for joining us today. This morning, we reported second quarter net income of $595 million and return on equity of 10%. Core income was $543 million and core return on equity was 9.5%. Our results this quarter were impacted by $262 million of after-tax catastrophe losses as well as significant non-cat weather losses, particularly in personal insurance. This has been an active weather year, with first half after-tax catastrophe losses of $488 million or 6 points on the combined ratio. To put that in some context, this was our highest level of first half catastrophe losses since 2011. While relatively high, the level of weather losses this quarter and year are within an over time range that we plan and price for. And we are confident that we are appropriately managing our exposures. Putting aside the weather, we were very pleased with the underwriting results in our commercial businesses and the progress we have made in personal insurance. In business insurance, we improved our underlying combined ratio compared to the prior year quarter. We were able to maintain a flat underlying loss ratio year-over-year in part by managing the non-rate levers that we talked to you about from time-to-time. Things like risk selection, mix, segmentation, risk control and claims handling. We also improved our expense ratio by about half a point. Our Bond & Specialty business delivered another quarter of excellent results with a combined ratio of 68.7%. In personal insurance, the underwriting results in both auto and home for the quarter were significantly impacted by catastrophe and non-cat weather losses. Within personal auto, bodily injury loss trends remained consistent with our expectations and we are on track with the actions we have taken to improve profitability. In terms of our investment results for the quarter, after-tax net investment income increased 6% over the prior year quarter benefiting from strong private equity returns. Our results enabled us to return $676 million to shareholders in the quarter, including $475 million in share repurchases. Turning to the top line, we were very pleased with the success of our marketplace strategies, which resulted in 5% net written premium growth to a record $6.64 billion. Across our commercial businesses, we continued to be successful in achieving historically high retention levels while also delivering positive and in some cases somewhat higher renewal rate change from recent quarters. In our core middle-market business, we achieved positive renewal rate change on an increasing portion of our portfolio. From a little more than half our accounts in the first quarter of last year to almost 60% in the first quarter of this year to just over 60% in the current quarter. And we did so while simultaneously maintaining retention at a very high 88%. As you have heard us say many times, our production is a result of deliberate account by account and class by class execution. Our efforts this quarter and over recent quarters reflect the continued low interest rate environment and the fact that rate together with the component of exposure that has the same impact on margins as rates have been below loss trend for a few years now. We will continue to execute to meet our return objectives, including by managing the non-rate letters and by seeking rate increases selectively and thoughtfully. In Personal Insurance, we continue to improve the profitability in our auto business by implementing the pricing and underwriting actions that we have discussed with you over the last few quarters. We are on track to achieve double-digit renewal premium change on a written basis for the end of the third quarter and loss trend remains consistent with our expectations. Given that progress and the continued growth in our very profitable Homeowners business, we feel good about the trajectory of our personal lines business. Looking forward across all our businesses, we are engaged strategically to maintain and strengthen our competitive advantages. We are focused on our digital agenda on advancing the way we leverage data on exploring and piloting smart investments and things like AI and robotics on setting the standard in terms of the experience for our customers and distribution partners and as always on being as productive and efficient as possible. So as much as we are relentlessly committed to day-to-day execution we are just as committed to our long-term strategic position. And speaking of our digital agenda, we couldn’t be more excited to welcome Simply Business under the Travelers’ umbrella in the third quarter. To sum it up, I am pleased and encouraged by execution in the first half of the year. And with our franchise value, strong balance sheet, superior talent and capital management strategy, we remain well-positioned to continue to deliver industry leading results. And with that, let me turn it over to Jay.

Thanks, Alan. Core income was $543 million down from $649 million in the prior year quarter. And core ROE was 9.5%, down from 11.6%. As was the case in the first quarter, these reductions in core income and core ROE were not driven by fundamental changes in our performance rather they were reflective of lower net favorable prior year reserve development and another quarter of relatively high levels of cat and non-cat weather activity. Beginning with underwriting results, net favorable prior year reserve development, which I will discuss in more detail shortly, was $132 million after-tax or $60 million less than the prior year quarter. This decrease was almost entirely in bond and specialty, where net favorable development decreased from a very high amount in the prior year quarter. Cat losses were $262 million after-tax, $40 million higher than the already high $222 million in the prior year quarter. And while remaining strong as evidenced by our 93.5% underlying combined ratio, underlying underwriting gain was lower than the prior year quarter primarily due to two things. As we had anticipated, the timing impact of personal auto bodily injury loss estimates that were consistent with the higher loss trends that we recognized in the second half of 2016 and normal quarterly fluctuations in non-cat weather. Investment results were once again strong, net investment income of $468 million after-tax, increased by 6% or $26 million as compared to the prior year quarter. Non-fixed income, NII increased by $46 million after-tax due to strong private equity returns, which more than offset the fully anticipated $20 million after-tax decrease in fixed income NII driven by the continued low interest rate environment. Consolidated net favorable prior year reserve development was $203 million pre-tax compared to $288 million in the prior year quarter. Business Insurance’s net favorable reserve development was $125 million pre-tax, the same as in the prior year quarter and net of the $65 million pre-tax or $42 million after-tax increase to environmental reserves. BI’s favorable development was driven by better than expected loss experience in our domestic businesses for workers’ comp, CMP liability, NGL. Bond & Specialty’s net favorable development was $78 million pre-tax, down from a very high $159 million in the prior year quarter, driven by better than expected loss experience in our domestic management liability business and it was known that prior year reserve development in PI this quarter. On a combined statutory Schedule P basis for all of our U.S. subs, all accident years across all product lines in the aggregate and all product lines across all accident years in the aggregate develop favorably or had de minimis unfavorable development in the first half of the year. Operating cash flows of $810 million remain very strong and we ended the quarter with holding company liquidity of $2.6 billion, up from $1.7 billion at the beginning of the year and higher than what we considered to be normal. This $900 million increase driven mostly by the $700 million, up 4% 30-year senior notes that we issued on May 30 allows for the funding of our acquisition of Simply Business expected to close in the third quarter as well as the repayment of our $450 million of senior notes maturing in December. All of our capital ratios were at or better than target levels. Net unrealized investment gains were approximately $1.6 billion pre-tax or $1 billion after-tax, up from $1.1 billion and $0.7 billion respectively at the beginning of the year, while book value per share of $86.46 and adjusted book value per share of $82.71 increased 4% and 3% respectively from the beginning of the year. We continue to generate much more capital than we need to support our businesses allowing us to return $676 million of excess capital to our shareholders this quarter. We paid dividends of $201 million and repurchased $475 million of our common shares consistent with our ongoing capital management strategy. And year-to-date we returned $1.15 billion to our shareholders through dividends and share repurchases. Before turning the mic over to Brian, there is one additional topic I will cover. On Page 19 of the webcast, you can see an update of our cat reinsurance treaties that renewed on July 1. There were no significant changes to these treaties and their cost was modestly lower than last year. As for our one remaining cat bond, which runs through May 2018 it’s attachment point maximum limit were reset as required annually to adjust the modeled expected loss of the layer within a predetermined range. For the year beginning May 16, 2017, we will begin recovering amounts under this cat bond if losses in the covered area for single occurrence reach an initial attachment point of $2.346 billion, up from the previous attachment point of $1.968 billion. The full $300 million of coverage amount is available on a proportional basis until such covered losses reach a maximum of $2.846 billion. With that, I will turn the microphone over to Brian.

Thanks, Jay. Starting with this quarter’s results in Business Insurance, we are pleased with segment income of $429 million and a combined ratio of 96.5%. The underlying combined ratio was 94.8%, down 0.5 point compared to the second quarter of 2016, driven by a lower expense ratio. The decline in the expense ratio resulted from slightly lower expense dollars and growing earned premium. Turning to the underlying loss ratio, as Alan mentioned earlier, our active management of the non-rate levers along with favorable non-cat weather in Business Insurance contributed to a comparable loss ratio year-over-year. We were especially pleased that we were able to achieve this result in an environment of relatively modest price increases. Net written premiums of $3.5 billion for the quarter were up more than 2% year-over-year, with domestic net written premiums, up about 2% driven by strong production results in select and middle-market. International net written premiums were up 8%, driven by the timing of certain adjustments in the second quarter of 2016. Turning to domestic production, one of our critical objectives is to retain our high-quality book of business. And accordingly, we were pleased that retention for the quarter of 85% remained at a historically high level. Renewal premium change was 3.5 points in the quarter, up about 1 point from the first quarter due to exposure growth in all lines, most notably in our property lines. Rate change remained consistent with last quarter and up more than 0.5 point from a year ago. We continue to achieve rate gains selectively and thoughtfully and are pleased that improvement in rate from a year ago has come broadly across the portfolio. New business of $491 million was consistent with the prior year quarter. Looking at the individual businesses, I will begin with Select, where production statistics remain strong, with retention for the quarter of 83%. Renewal premium change was about 5 points while new business premiums of $109 million were up 10% year-over-year. In middle-market, our results reflect consistent performance in the marketplace as demonstrated by another quarter of strong retention at 88%. Renewal premium change of about 3.5 points was up about a point from the first quarter due primarily to increased exposure across all lines and included nearly a point of renewal rate change, up a bit from the first quarter. New business of $294 million was down slightly versus the prior year quarter. So, all-in a good financial result for the segment with continued stability in the marketplace. I will now turn to Bond & Specialty Insurance, where segment income for the quarter was strong at $163 million. Income was down somewhat from the prior year quarter due to a lower level of net favorable prior year reserve development. The underlying combined ratio remained very strong 82%. As to the top line, net written premiums for the quarter were up 5% across the segment, with solid growth in our domestic surety and management liability businesses. In international, growth was driven by strong production in our Canadian Surety and UK Management Liability businesses, along with some non-recurring policy and reinsurance timing. Turning to production in our domestic management liability business, we continue to execute our strategy of retaining our best performing accounts, while writing new business in return adequate product segments. So, we couldn’t be more pleased that for the third consecutive quarter, retention came in at a historic high of 88%, while new business was up slightly from the second quarter of last year. Renewal premium change of 3.8 points was down slightly from the first quarter. So, Bond & Specialty results remained terrific and we continue to feel great about the segment’s performance and our market positions. Turning to Personal Insurance, net written premiums for the segment grew 8% in the quarter, with roughly half of that growth coming from price increases. The quarter’s combined ratio of 104.1 was significantly impacted by weather, with catastrophe losses of nearly 10 points for the second consecutive quarter. The underlying combined ratio of 94.5 was also significantly impacted by weather, with non-catastrophe loss levels that were well above what we would normally expect in the second quarter. Turning to auto, in terms of production, we are pleased that we were successful in maintaining strong retention, while achieving significant price increases. New business was down slightly year-over-year, while TIF growth moderated. The domestic agency auto combined ratio for the quarter was 106.4 with 4 points of cat losses more than double our normal second quarter expectation. The auto underlying combined ratio of 102.4 was also impacted by weather, with about 1.5 points of non-cat weather losses, which was above our expectations, but about the same as the second quarter of 2016. Excluding the impact of weather, auto loss results remained in line with our expectations. Compared to the second quarter of 2016, the underlying combined ratio was up 3.8 points. As you can see on Page 15 of the webcast, the increase is primarily due to the timing of the impact of the higher run-rate of bodily injury losses that we recognized in the second half of 2016. As we discussed in our year end results call, in response to higher bodily injury loss levels we are taking actions to improve profitability, most notably by improving the pricing of the book. Renewal premium change increased from about 6% in the first quarter to nearly 8% in the second quarter and we remain on track to reach double-digit increases before the end of the third quarter. By year end, we expect to have obtained enough rate on a written basis to address the elevated bodily injury loss levels. The full earned impact of these written rate increases will be realized by the end of 2018 consistent with the timeframe we mentioned in January. As we have discussed in recent quarters, the combined ratio also continues to be elevated due to the impact of tenure on our book as the higher levels of new business written in previous periods continue to season. We expect this impact will continue to grow for a few more quarters albeit at a decreasing rate. As new business production moderates to a steady state, the tenure impact will gradually diminish. The gradual reduction of the tenure impact, along with rate that keeps pace with loss trend over time, should result in a combined ratio that aligns with our target. It’s important to note that even though the combined ratio is currently elevated due to the impact of tenure, we expect the new business to add economic value on a lifetime basis as the increased volume brings additional profit dollars. Turning to Agency Homeowners and Other, the combined ratio of 100.3 for the second quarter reflects 17.5 points of cat losses. The underlying combined ratio of 82.8 was 4.6 points higher than the second quarter of 2016. The year-over-year increase was primarily due to non-cat weather losses, which were also significantly higher than our long-term average. Continuing the momentum in recent quarters, Homeowners’ net written premiums and policies in-force both grew at levels consistent with the strong results we experienced in the first quarter. We were pleased that we achieved modest price increases in this profitable line, added more property-oriented distribution partners, and focused on account rounding. So clearly, a significant impact from weather in the quarter, but we continued to grow our profitable Homeowners business and made good progress towards the goals we laid out for auto at the end of last year. With that, let me turn it back over to Gabby.

Thank you. Kelly, we are ready to begin the Q&A portion of the call. Before we begin, I would ask you to limit yourself to one question and one follow-up. Thank you.

Thank you. [Operator Instructions] Our first question comes from Kai Pan with Morgan Stanley. Please proceed with your question.

Thank you and good morning. My first question on Personal Insurance, could you quantify the impact from the non-cat weather as well as a tenure in the second quarter results?

Yes. So, I will start with that. This is Brian. And let me do them in reverse order. On the tenure impact, we said last quarter or the quarter before that it was about 2 points and that’s up about 1 point. So right now, it’s about 3 points in total in the combined ratio and that’s about 1 point delta from last year. On the non-cat weather of the 4.6 points you know variance in the underlying, the vast majority of it and you can think roundly about three quarters of that number is due to non-cat weather. And the reason for the lack of total precision there is that we are looking at a lot of loss activity in trying to attribute it and we were pretty accurate on it, but it’s not something that you can specifically tie down and Michael has got a little bit more detail.

Yes. I think so again, the 4.6 Brian is referring to as property year-over-year variance. And as you said, the majority of that is due to non-cat weather. I would say a couple of things on that front. One, from our perspective and I think you can look at weather data and see that it was a very active first half of the year from a weather standpoint. NOAA talked about nearly 11,000 severe weather events through May of this year being up over long-term averages. And I think importantly to back it up to what non-cat weather is right. So, our non-cat weather according to our definition does include some PCS events that don’t meet our catastrophe threshold, but it also includes a variety of much smaller weather events that never make the news. And connecting that to the NOAA data one of the things that they talked about is through May, there were over 6,000 reports of wind damage, which is either wind damage or storms that have significant wind associated with them. Again, not the things that show up on the news, but according to their statistics, those events that 6,000 is almost double the average of the 2000 to 2016 run-rate. And it’s the second highest amount of storms of that type since 2011. So, I think our experience is consistent with that, the drivers underneath that non-cat weather. The biggest incurred loss increases we see underneath that estimate are associated with wind and hail.

Great.

So, that’s a little bit more color on what’s underneath that from a property.

Right. So this is Brian. So, that was a very good long answer to the question you didn’t ask. I apologize for hearing that incorrectly. But on the auto side, there is 1.5 points as I said in the underlying, about 1.5 points of non-cat weather losses, which comparable to what we had in last year’s results and I would say a good bit higher than what we – what our normal expectations would be, what our long-term averages are. So, hopefully that’s responsive.

I really appreciate the extensive response. My follow-up questions on expense ratio side, you have seen quite a bit of improvements in Personal Auto, will that continue? And then were you expanding any of these initiatives into the Business Insurance on the expense side, because we have seen some year-over-year improvement there as well? Are there more to come?

Yes. So, let’s take the two pieces. Michael can talk a little bit. Expenses we have done – we have been doing a lot in Personal Insurance for the last couple of years and that is continuing and then we could talk a little bit about Business Insurance and what we are doing there. So, Michael on the PI…

Yes, from a Personal Insurance standpoint, the story continues to be that we are adding volume and holding costs pretty consistent. So, I mean that’s a continuation of the story we have been talking about and we continue to see some of that benefit in the quarter.

Hey, Kai, good morning, it’s Alan. Let me try to address your question on Business Insurance. So, we don’t give outlook explicitly on expenses and there is always from period-to-period going to be some ups and downs in expenses. But we have had a number of initiatives underway. We have got initiatives underway now. If you looked at our shop floor right now, we’d say that there is improved productivity. It’s – you don’t exactly see that coming through in the numbers in the moment, because for example there is other ups and downs and we have got the expenses associated, the cost associated with creating that productivity, but it is a serious and ongoing initiative that we are all hopeful that we will be seeing in incoming periods.

Great. Well, thanks so much for all the answers.

Thank you.

Next question please.

Our next question comes from Elyse Greenspan with Wells Fargo. Please proceed with your question.

Hi, yes. My first question is on just in going through some of your commentary in the queue in terms of the outlook for the Business Insurance business for 2018 you point to stable renewal price changes and also stable margins. I guess just how are you expecting your margins to stay stable when even if we get continued exposure growth, your rate is falling below trend, if you could just provide some additional commentary and how you see kind of your margins in that business playing out in 2018?

Yes, good morning, Elyse, it’s Alan. Thanks for the question. We do get that from time-to-time. And I think we have addressed that on this call from time-to-time. We get the math here looking at it’s a very certain narrow rate versus loss trend. But what we have told you and what I tried to address in my prepared remarks this morning is that there are plenty of levers other than just pure rate that contribute to the margin outlook. And I mentioned some of it in my prepared remarks, things like segmentation and risk selection and claims handling and risk control expenses, all the rest. So, all of those things wrap up in margin. The component of margin that is sort of narrow rate versus loss trend, particularly when you take into account the component of exposure that behaves like rate from a margin perspective is and continues to be relatively small. And these incremental rate gains that we have been writing for a few quarters now have offset that to some degree. So, you take all that together and we are comfortable with a broadly consistent outlook. Of course there is going to be volatility from things like weather, but in terms of things we control we feel good about a broadly consistent margin outlook, we have been giving you that outlook for some quarters now and we have delivered on it. So, we feel good about it.

Okay. And then just a couple of quick things on that Personal Auto side, the new business did decline this quarter, policy count still do go up sequentially. How do you see the policy count playing out as you continue to push for more rate? And a second question in the commentary you guys pointed to what you are doing to get back to your target margin in that business. Could you just remind us what your target margin is for the Personal Auto business? Thank you.

Sure. And Elyse, this is Michael. I will start with the target margin question. I think broadly a combined ratio range of 96 to 98 points for auto is the range that we are shooting for over time. To your question on TIF and PIF growth, as we have talked about, our strategy is to improve profitability in auto, while growth moderates. We are very pleased with the trajectory that the TIF growth in the new business is on. We are also, I’ll say particularly pleased with the strength of retention in the face of the increased rate. You see retention in the production slide at 85 points, actually above our long run average for that number, a number we are very pleased with as we have moved rate up almost a couple of points quarter-on-quarter. In terms of the outlook for PIF growth again our plan remains consistent. We are looking for moderate growth, while we continue to improve profitability.

And Elyse, it’s Alan. I would just add on the margin target. There is some advantage we have to being an account solution, the fact that we have such a good Homeowners’ book enables us to – gives us some advantage in the combined ratio target for the auto and not from a subsidization perspective, but from a synergy perspective, for example, the impact on retention and things like that. So, we think the fact that we are an account solution provider is a big help from that perspective.

Okay, thank you very much.

Thank you.

Thank you. Next question, please.

Our next question comes from Jay Gelb with Barclays. Please proceed with your question.

Thanks and good morning. With regard to the small commercial business market, Travelers is clearly a leader in that space. We have seen a number of other large companies looking to either enter that business or more insured tech focused operations trying to disrupt that business. Can you talk about how Travelers is defending its position in that profitable market?

Yes, good morning Jay, it’s Alan. So, yes, we read the same retrofit you read to one degree or another, occasionally we see it in the marketplace, I think different competitors and others are at different stages of their engagement in the marketplace. And just a couple of things, one, we do have – start with a great position, we think that’s important from a competitive perspective. We have got great technology. We have got great talent. We have got great data. We have got great relationships with distribution. We think all that’s – all that’s very important. And we are not standing still. So, some of the investments I mentioned in my prepared remarks are directly related to those businesses. That’s important for us. And you look at investments like Simply Business that is meant to make sure that as we look around the landscape and see how the world is changing that we are positioning Travelers to continue to be effective and very competitive in that marketplace. And lastly, I would have that small commercial, in fact all of our businesses have always been competitive and we have got lots of arrows in the quiver that I guess I should say competitive advantages that enable us to compete effectively. So, we feel good about the outlook.

As competition increases in that space and it moves more towards technology focused, I mean, we see a number of these companies saying essentially one or two clicks and you get the quote to bind. Is Travelers where it needs to be from that perspective?

Yes. There is a lot of rhetoric out there. How much business is actually being transacted on that basis and how much is aspirational from the perspective whether that you are saying is something that is worth looking into. But I would say that we are as engaged as anybody on – in all those areas and as aspirational as everybody in all those areas. So, yes, we think we are where we need to be to make sure that we continue to be competitive. And again, just think about the innovation going on around here are the investments that we are making and we are not flat-footed. These aren’t things that we are starting with today, these things that we in many, many cases have been thinking about for many years. And again I will just point to the Simply Business transaction. That’s something that we announced a couple of quarters ago, but it’s nothing we stumbled on a couple of quarters ago. That was the result of having been thinking about the exact issue you are talking about over a number of years and planning and being thoughtful and strategic about it. So I would say yes, we are where we need to be.

Appreciate it. Thank you.

Thank you.

Thank you. Next question, please.

Our next question comes from Jay Cohen with Bank of America/Merrill Lynch. Please proceed with your question.

Yes. Just one follow-up, maybe two follow-ups on the personal line side, one is that PIF growth in the Homeowners business seems pretty resilient in the face of rising auto insurance premium rates. Would you expect to maintain that or could your effort to improve auto have some spillover effect on the Homeowners side?

Jay, this is Michael. I think that’s something that we have been talking about and focusing on and it is why in addition to our objective to improve profits and moderate growth in auto. Our other key objective is to maintain the momentum in homes. To Brian’s prepared remarks, we have made some specific efforts to sustain that home growth in the face of seeking the auto rate, focusing more on rounded business. The good news underneath both the auto and the home growth is the strongest growth we see it in rounded accounts where we are writing both the auto and the home or writing the auto or the home with other lines of business. We are focusing on property intensive distribution relationships, focusing on distribution management and working with agents and brokers to make sure they are giving us at least our fair share of the property business that goes with the auto we write. So, I think through a series of specific tactics and strategies that’s what helped us sustain the home growth so far and we are hopeful that we can continue that.

That’s good answer. Thank you. The other just quick one on the auto side, if you look at second quarter underlying loss ratio versus first quarter that did get a bit worth, I am assuming some of that’s non-cat weather and I am assuming some of that is seasonality. Is that a fair assessment?

Jay, tell us again what number you are looking at. Just so I want to make sure that we are looking the right thing.

Yes. I am looking at personal auto second quarter underlying loss ratio versus first quarter underlying loss ratio first quarter 2017, so consecutive quarter?

As you can see in the webcast, the lion’s share of that is the timing of the recognition of the bodily injury losses and then there is the 10-year component that Brian mentioned.

But if you are comparing Q2 this year to Q1 this year, Jay?

The timing shouldn’t be an issue.

Yes, I am sorry, I was thinking you were talking….

Right. So, I think to your point, there is seasonality in that expectation is the key driver of that. Again, when we look at underlying consistent with the comments that Brian made, you do have non-cat weather impacting that. We have a higher loss ratio expectation in the second quarter than we do in the first largely related to weather and driving activity picking up.

Got it. Helpful. Thank you.

Thank you.

Next question please.

Our next question comes from Meyer Shields with KBW. Please proceed with your question.

Great. Thanks. Brian, you mentioned when you are discussing to this insurance that there was lower non-cat weather in the quarter, is that just sort of randomness or is there some reason why you would see a divergence in non-cat weather losses between business and personal insurance?

Yes, I think it’s mostly randomness. And when you think of what’s driving the non-cat weather as Michael said, it’s not the big, big catastrophe events, the smaller events are the ones that don’t even make PCS events. And those things are more likely to have a frequency on the Homeowners side than they would on the business insurance side. So, it’s probably mostly randomness and then some the nature of the beast.

Yes. So, Meyer, you think about hail for example and the types of things that individuals ensure are more susceptible to hail damage, for example, than commercial property that’s more resilient.

Okay, that makes sense. The second issue when we look at the pricing changes in business insurance that are hovering around 60 basis points, which is appreciably different than the preceding four quarters. I am saying appreciably, so less than a point. Does that translate into sort of different expectations for core underwriting margins? Is it a little easier as that 60 basis points runs in?

Sure. I mean, it’s just math right. As the pure rate goes up and by the way I would point out that the exposure is up 2, we are not calling that a trend, but it’s broadly enough across our portfolio that for the most part we are attributing it to economic activity. But you look at that incremental price and you look at the component of exposure that behaves like rates and sure, it’s math that it’s a good guy from a margin perspective for sure. It’s not – we are not at the point where they are equal to each other, but we are getting closer.

Okay. Thanks so much.

Thank you.

Next question please.

Our next question comes from Sarah DeWitt with JPMorgan. Please proceed with your question.

Hi, good morning. First, just on the personal auto insurance combined ratio target of 96% to 98%, does that include the tenure impact and what I am trying to get at is when you say you get back to your target margins by the end of ‘18 should we be thinking 96% to 98% plus a couple of points for tenure?

So, Sarah to your point, let me just make sure I say this accurately. So when we say at the end of ‘18 we are not talking about the tenure. So, it is 96% to 98% plus a tenure impact. So I think it’s the way you just said it. And…

And specifically your comment about the end of ‘18 is rates covering the increased bodily injury loss estimate.

Right, right. And so I think as you put those things together it answers I think the other way you asked that which is when we say 96% to 98% we are assuming that tenure has moderated and we are at kind of a steady state.

But I will go back just to highlight Brian included in his prepared remarks which is we don’t look as tenure as a bad guy, because it’s part of the plan. It’s adding economic value. And so that’s deliberate.

But would it be zero by the end of ‘18 right?

No, no, no. I think Michael said this in the last quarter comments I just repeat it is that when we talk about the timing of tenure unwinding what we are talking in terms of years, not quarters.

And then my follow-up is just could you revisit again what you are seeing in terms of lot trends this quarter. Are they consistent? Are there any signs of it picking up or moderating and if you could talk about commercial versus personal? That would be helpful.

Yes. I will take that Sarah in our personal business, loss trend came in as we expected. So – and I think we have told in the past where expectations were, but there is nothing happened this quarter or first half of the year that was inconsistent with our expectations. And I would make the same comment about business insurance it’s very stable and inconsistent with our expectations. Now, I am addressing in a sentence frequency and severity over $15 billion of business. So, there is always going to be ups and downs in one line versus another, but broadly speaking, we view loss trend in our commercial businesses as I am nothing remarkable consistent with expectations.

Okay, great. Thank you.

Thank you.

Next question please.

Our next question comes from Brian Meredith with UBS. Please proceed with your question.

Yes, thanks. Two questions here. First one, could you talk a little bit about what you are seeing with terms and conditions in the Business Insurance segment, any changes going on is the market getting maybe a little bit more generous in that area?

The short answer is no, we are not seeing anything significant. There is obviously always little movements up and down, but nothing dramatic that we are seeing.

Yes. Again hard to address doing our premium in one sentence, but by and large, there is nothing that we are looking at that’s causing us to think differently about current results or outlook.

Got it. Deductibles are covered. Okay, great. And then a second question just curious if I look at your commercial auto, some premium growth going on there, is that largely rates driven or you are actually seeing opportunities in the commercial auto to pickup business here?

Yes, the short answer – this is Greg Toczydlowski. The short answer on that one is it’s predominantly rate-driven across the portfolio. Our commercial auto book as we have shared in the past certainly hasn’t been immune to some of the pressures that we are seeing across the entire industry on automobile. And accordingly, we have been pursuing rate on that. So, that’s what you are seeing move through that top line. Because we are so much of an account solution, the retention has been pretty strong and so that gives us that net impact on the top line. So we are going to continue pursuing that strategy.

Great. Thank you.

Next question, please.

Our next question comes from Paul Newsome with Sandler O’Neill. Please proceed your question.

Good morning. Thanks for the call. I like to revisit that the little tick up we saw in the domestic business insurance from a rate perspective. And to your perspective, could you talk about how much that is you versus maybe the environment if we are assuming maybe a little bit of a tick up and awakening up of competition. We have seen a couple of surveys that suggest maybe sort of flatten your pricing and I just don’t know how much to read into it?

Well, I would say, it’s definitely both to some degree, right. I mean, it’s us what we transact very deliberately on an account by account and class by class solution, so the rate we are getting is because we are trying to get the rate, but we are getting it because we operate in a very competitive marketplace and if the marketplace weren’t letting as getting, we wouldn’t be getting it. So, we are certainly not given the premium growth we have. So, I would say it’s a combination of both. Now, I do think that we do have some advantages here maybe relative to the market. One, franchise value matters when it comes to pricing. So, product perhaps, relationships with distribution, which is valuable to our customers and our distribution, claims handling, risk control those things, I think really matter when it comes to the value we can deliver. And secondly, I would say we have got really important data and analytics and that helps us from a granular pricing perspective as well. So I would say it’s the combination of the efforts the franchise value and competitive advantage that we have been in the marketplace.

Is there nothing in the competitive environment that you have seen any swings competitors moving it out or vice-versa or it is basically just kind of a general trend?

It’s a little soft. Can you repeat that?

Sorry, the soft is voice. Have you seen any actual trends or changes in your competitors themselves, anybody moving in and out or making any changes from a pricing perspective?

It’s just – it would be so hard without taking it through competitor by competitor, business by business, geography by geography to give you a sense of that, but there is always movements, competitor by competitor, business by business, geography versus geography. And so to the extent we see any of that occurring now, it would be consistent with the way we see that type of dynamic over time. So, in that respect, I am not really.

Okay, thanks very much.

Thank you.

Okay. Next question please.

Our next question comes from Josh Shanker with Deutsche Bank. Please proceed with your question.

Yes, thank you. A couple of questions on non-cat weather, I guess or maybe one. Allstate has taken the tax of reporting a much lower threshold for what they call catastrophe, but we should assume that of course there is going to be some level of cat activity in every quarter or every time they announced their numbers. When you talk but non-cat weather activity look over your data of the last 3 years, 5 years, 10 years, does that net – does the benefit and hindrance of non-cat weather net out to zero or is it a negative profit layer on the top of how we should look at things?

I am not sure, Josh, what you are asking. I mean, we have an expectation of what non-cat weather is going to do over time in a range and we set our prices in part based on that expectation. So whether it’s a positive or negative over time is going to be a function of over time whether we are getting the right price for the losses. So, I don’t – if you are asking sort of where it is in a particular period relative to a long-term average, we can give you that information too. But as I have said in my opening remarks, what we are seeing is certainly relatively high. There is no question about it, but not outside of what we would expect in the context of an over time range.

So when you say that three quarters of the personal lines deterioration is due to non-cat weather, that’s non-cat weather above and beyond a layer of normal expectation?

Well, actually I think the number that you are talking about was a property number, but I think what we are explaining is a year-over-year variance. So, I think that the year-over-year variance, if I am remembering the number right, assuming like 4.6 points at least in home. And I think what Brian’s comment was is that the lion’s share of that is non-cat weather that was worse in the current quarter as compared to non-cat weather in the prior year quarter.

And then I did. So that’s what I meant by the three quarters. I did also say in my comments that it was also significantly higher than our long-term average. So, maybe a little less than that other number whatever it might be, but still significantly higher than our long-term average and within a volatility as Alan said that isn’t totally out of pattern. One of the tricky things with this, Josh, especially when we are talking about Homeowners but also with our commercial property, weather in totality makes up something between 40% and 50% of our total loss content. So, you are at some point you are almost talking about the loss ratio in aggregate, which if you are trying to include every single weather related loss. So it’s…

And just another avenue I guess of discussion, your results in Business Insurance continued to be very, very good regardless of weather the variance from a quarter ago. If you would accept 100 or 200 basis points lower level of profitability in that line of business, could you grow materially? Are you being – is there an opportunity that’s not being met, because you are being so profitable than maybe you should relax profitably goals and instead grow?

Yes, Josh. We have always thought that lowering price to generate incremental premium is a fool’s errand, because we operate in a very competitive marketplace and you just end up with same relative market share at lower profitability. And once you lower the price and consequently lower the margins on the business you are keeping, then you got to write a whole lot of new business to get that margin back. So, we don’t feel like that strategy. We like the strategy of again as I have priced on like a broken record, but on a very granular basis, looking at the accounts and classes of business that we are writing, we look at our loss cost in a yield curve and we calculated price that we think meets our return objective and that’s the way we run the railroad. So, we don’t like the strategy of lowering price to generate volumes.

Okay. Well, good luck and thank you for the answers.

Thank you.

Great. Thank you. This is what appears to be our last question.

And our last question comes from Larry Greenberg with Janney Montgomery Scott. Please proceed with your question.

Good morning and thank you. Just wondering can you give us any color on the environmental strengthening whether the complexion of that was any different than it has been in the past. I know it’s a little bit better than a year ago. Is there anything maybe extrapolate from that related to the third quarter, it’s best to sort of view and are you guys thinking any differently about how you should be managing these exposures?

Hey, Larry. This is Jay Benet. So, in relation to the environmental charge this year versus what we saw last year you are right it was moderated from the levels of the prior year. It continues to be an area of frustration. It’s – I’d call at the level of a nuisance at this point in time. We are not talking about very large dollars, but as you know every year we take a crack at what we think is going to happen with regard to new policyholders, what happens with regard to the active policyholders, what’s taking place in relation to defense cost versus actual cleanup cost and we have to make lots of assumptions associated with that. A year goes by or 6 months or whatever the period of time is, we look at what’s actually taking place versus those assumptions. And what we say in the Q is what I am going to repeat here that the favorable trends, we have been seeing for a number of years continue. They didn’t continue quite at the level that we expected, but there was still favorable when it came to policies presenting new claims of policyholders with new claims or what’s taking place with regard to other aspects of it. But as we have refined those estimates in this particular case we came up with an additional increase to the reserves. So I’d say that’s the lion’s share of it. I will say that there are parts of the country of the Pacific Northwest in particular, where cleanup costs are being a little more elevated than what we had anticipated. So, you do have certain jurisdictional elements associated with this that will change what your estimates of costs are, but I will go back to what I said before that on the overall context of our reserve levels in Business Insurance in the company as a whole. This is fairly de minimis item at this point in time.

And nothing defense cost wise to extrapolate to asbestos or anything else?

No, I don’t think you can really extrapolate what takes place in environmental to asbestos, but I think you can, if you can extrapolate anything, you can probably look at what other companies have said about the same subjects of the asbestos and environmental and recognize that we are no different than everybody else. So, I think we will continue to address each one of these things. We have our claims study ongoing as it relates to asbestos and we have more news to tell about.

Thank you.

Excellent. This looks like we are wrapping up. Thank you all for joining us today. And as always, we are available on Investor Relations for any follow-up questions. Have a great day.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and we ask that you please disconnect your lines.