Gabriella Nawi – SVP, IR Jay Fishman – Chairman and CEO Jay Benet – Vice Chairman and CFO Brian MacLean – President and COO Alan Schnitzer – Vice Chairman; CEO of Business and International Insurance Doreen Spadorcia – Vice Chairman; CEO of Claim, Personal Insurance and Bond & Financial Products.

Jay Gelb – Barclays Michael Nannizzi – Goldman Sachs Kai Pan – Morgan Stanley Vinay Misquith – Evercore Jay Cohen – Merrill Lynch Larry Greenberg – Janney Capital Al Copersino – Columbia Management Meyer Shields – KBW Paul Newsome – Sandler O’Neill & Partners Josh Stirling – Sanford Bernstein.

Good morning ladies and gentlemen, welcome to the third quarter results teleconference for Travelers. We ask that you hold all questions until the completion of formal remarks at which time you will be given instructions for the question-and-answer session. As a reminder this conference is being recorded on October the 21st, 2014.

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, Julian. Good morning and welcome to Travelers’ discussion of our third quarter 2014 results. Hopefully all of you have seen our press release, financial supplement and our 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 Jay Fishman, Chairman and CEO; Jay Benet, Vice Chairman and Chief Financial Officer; Brian MacLean, President and Chief Operating Officer; as well as Alan Schnitzer, Vice Chairman, Chief Executive Officer of Business and International Insurance; and Doreen Spadorcia, Vice Chairman, Chief Executive Officer of Claim, Personal Insurance and Bond and Specialty Insurance.

They will discuss the financial results of our business and the current market environment. They will refer to the webcast presentation as they go through prepared remarks, and then we will take questions. Before I turn it over to Jay, I’d 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 projected 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, Jay Fishman..

Thank you, Gabi. Good morning everyone and thank you for joining us today. As I’m sure you’ve read the results this quarter were just terrific, as demonstrated by our operating returning on equity of 15.2%.

In addition to posting very strong financial results, the underlying dynamics in our businesses are showing very solid performance and give us continued optimism about our future financial results. Starting with Personal Insurance, Quantum 2.0 is proving to be a real success.

New auto business is a clean double from last year’s third quarter and loss experience well still early is very much consistent with our original plans.

Retention on our entire auto book remains high, on a sequential quarter basis total auto policies enforce increased for the first time since the second quarter of 2011 and we expect to see sequential policy growth again in the fourth quarter. Lastly and positively, we believe our homeowners business is actually showing some lift from Quantum auto.

In our Business Insurance segment its business as usual. We continue to achieve rate gains were needed and we see no fundamental change in the competitive environment that is trends remain generally the same.

Retention is actually up in almost all of the business units and we remain optimistic about our ability to continue to successfully execute our granular pricing strategy and achieve improving returns.

In our Bond and Specialty Insurance business, we couldn’t be more pleased we’ve navigated through the financial crisis in the great recession as successfully as we have as evidenced by consistently strong results. This performance demonstrates the underwriting thoughtfulness and skill that are such a part of the fabric of our organization.

And we’re particularly proud of our investment department performance in a challenging environment they’ve maintained their investment criteria and done the right things, another example of our discipline.

Well it’s always nice to post a strong quarter; I think it’s important to remember that we’re committed to running this organization successfully over the long-term. This results that we posted this morning were driven by decisions made years ago that have been translated to successful marketplace strategies.

Our long-term performance is really the result of [indiscernible] analysis, our commitment to analytics, insightful discipline applied to a risk taking business and to be candid a little bit of good fortune.

Our energy is going to be committed to two things, first more of the same, first rate execution of thoughtful data drive strategies; second notwithstanding the more of the same approach, we are also committed to challenging our own conventional wisdoms to identify opportunities and making the decisions today that are necessary perhaps even critical to making sure that our financial performance remains top tier.

In addition to hearing from Jay and Brian this morning, Alan and Doreen will provide the commentary on the performance of their business segments. And with that, let me turn it over to Jay..

Thanks Jay. We were very pleased with our results this quarter with operating income per diluted share of $2.61 and an operating ROE of 15.2% driven by very strong underwriting and investment results.

Underwriting results benefited from a slightly lower level of catastrophe losses this quarter, $83 million pretax is compared to $99 million pretax in the prior year quarter.

In contrast to the lower level of cats, we incurred higher non-cat weather related losses this quarter, as compared to the prior year quarter, which more than offset the benefit of earned pricing increases that exceeded loss cost trends in each of our business segments and drove a slight 0.5 point uptick in our underlying combined ratio.

Underwriting results also benefited from net favorable prior year reserve development of a $113 million pretax down from a $158 million pretax in the prior year quarter.

Current quarter net favorable prior year reserve development included a $250 million pretax increase to our [indiscernible] reserves driven mostly by increases in the company’s estimate of projected settlement and defense cost related to a broad number of policyholders due to a higher level of litigation activities surrounding mesothelioma claims than we’ve previously anticipated.

As well as a $77 million pretax increase in our ULAE reserves that the accrual of interest resulting from a recent court decision relating to the asbestos direct action litigation.

On the positive side current quarter reserve development included a $64 million pretax benefit resulting from better than expected loss experience related to an old workers compensation reinsurance pool that we participated in along with another pretax benefit of $98 million that resulted from the final commutation of assumed and ceded reinsurance treaties associated with that pool.

Current quarter reserve development also benefited from better than expected loss experience in GL, property and fidelity and surety in recent accident years. And year-to-date on a combined stat basis for all of our subs and excluding A&E, all accident years developed favorably.

Overtime, we’ve generated much more capital than what is needed to support our business. This has allowed us to return over $900 million of excess capital to our shareholders this quarter, we pay dividend of a $186 million and repurchase $751 million of our common shares consistent with our ongoing capital management strategy.

And year-to-date, we returned almost $2.9 billion of excess capital to our shareholders, with dividends of $553 million and common share repurchases of $2.3 billion. Shifting from the current year; let me provide a historical view of how our capital management strategy is performed over time.

The Board of Directors initiated the current share repurchase program on May 2nd, 2006 a little over 8 years ago. On May 1st, 2006 the day before the board authorization Travelers market capital was $30.2 billion and we had approximately 696 million shares outstanding.

Since that time, we’ve repurchased over 416 million shares at an average price of $56.50 per share issued a net amount of approximately 51 million shares mostly in connection with share-based incentive comp awards, and now have 331 million shares outstanding at the end of the current quarter, a 52% reduction in our common shares.

And if you add in the dividends that we paid during this time period, we’ve returned approximately 98% of our May 1, 2006 market cap to our shareholders.

We accomplish this all throughout this period while maintaining capital and support of strategic business opportunities such as those in Brazil and Canada, very strong holding company liquidity and modest debt levels. Notably our ratings increased during this time period from already very high levels to industry leading levels.

And even after returning all of this capital to our shareholders, our market cap stands at $31.6 billion today. Operating cash flows of over a $1.8 billion we’re extremely strong this quarter bringing total operating cash flows almost $3.2 billion year-to-date.

We ended the quarter with holding company liquidity of almost $1.9 billion and all of our capital ratios were at or better than their target levels.

Our debt-to-total capital ratio of 21.3% was lower than its target range and during the quarter book value per share increased 1% and adjusted book value per share which excludes net unrealized investment gains and losses increased 2%, while year-to-date book value per share increased 9% and adjusted book value per share increased 6%.

Finally net unrealized investment gains were approximately $2.9 billion at the end of the third quarter as compared to $2 billion at the beginning of the year. With that, let me turn things over to Brian..

Thanks, Jay. Before Alan and Doreen go over the segment results, I would like to give some perspective on how we view the overall market. And to do that, I will start with returns. We are a return-focused company and, as such, we are pleased with our reported ROE for the quarter and year-to-date.

We are especially pleased that we were able to deliver these results and what continues to be a very challenging investment environment, one where 10-year Treasury yields continue to hover between 2% and 2.5%. When we look at our returns below this aggregate level, we are also encouraged.

To understand our product profitability, we look at accident year returns at the line level; and at this more detailed level, we are very pleased both with the improvement that we have seen over the last several years and with the absolute level that those returns are at today.

There are obviously differences line by line, but overall we continue to see signs of a rational marketplace.

Doreen and Alan will go through the segment production statistics, but as we analyze our results at a very granular level, we see that we continue to be successful in executing our pricing strategy, which is to retain a high percentage of our best business, improve profitability where needed, and write new business that meets our target returns.

I don’t have a crystal ball and I am not predicting the future, but based on what we see today there is nothing in the market that would cause our ability to continue to execute on this pricing strategy to be meaningfully changed.

We are also encouraged that as overall returns have become more consistent with our long-term objective, we have begun to see improving top line trends. We have said many times that volume is never our goal, but that we always seek opportunities to add business that meets our target returns.

We have seen improved retention across most of the businesses and higher new business volume in many of them, and we believe that these trends are the result of our strategic focus on delivering meaningful and sustainable competitive advantages in the markets we serve.

So overall through the first 9 months of 2014, fairly stable market conditions and very strong underwriting results. And with that, I will turn it over to Alan..

Thank you, Brian, and good morning. In Business and International Insurance, third quarter operating income was $552 million. The underlying combined ratio, which excludes the impact of cats and prior-year reserve development, was 94.9 for the quarter, up 1.7 points over the prior year.

The 1.7-point change resulted from an increase of 2 points, largely from non-cat weather in both our domestic and international businesses, as well as the impact of the inclusion of The Dominion, partially offset by the favorable impact of about 1 point from earned price exceeding lost trend.

We also saw a modest uptick in our expense ratio, mostly attributable to a favorable item in 2013. Turning to production trends for domestic BI, compared to the second quarter, overall retention was up about 1 point and total renewal premium change was up slightly as the increasing exposure more than offset a lower level of positive rate change.

Year-over-year, new business was about flat. In Select, we were pleased to see an improvement in retention to just over 80%, with total renewal premium change of nearly 9%. We wrote $92 million of new business, representing a 5% increase over the same period last year.

In middle market, as a greater percentage of the business has achieved attractive returns, we have increased our focus on keeping the better -performing accounts.

Accordingly, we were pleased to have achieved a 2-point increase in retention to a very strong 85% with positive rate change declining less than 0.5 point, and each case is compared to the most recent quarter. Lastly, new business of $236 million for the quarter grew by nearly 10% as compared to the same period last year.

Overall, we feel very good about the production results; but as you’ve heard from us many times in recent quarters, the aggregate numbers don’t tell the entire story. The detail of where we are getting rate and which accounts we are retaining is key to evaluating the success of our production strategy.

In our middle-market businesses, the data beneath these exhibits shows that on our best-performing business our retention has improved to around 90% and we continue to achieve slightly positive rate increases. On our poorest-performing accounts we are achieving low double-digit rate increases with meaningfully lower retention.

These results are consistent with our marketplace strategy. Looking at production results for our International business, retention remains strong. Renewal premium change was down somewhat from recent quarters due primarily to lower rate and exposures in Lloyd’s; and new business was up from the prior year due to the acquisition of The Dominion.

Before I turn it over to Doreen, I would like to make an observation about margins. Many industry observers seem to focus overly so, in our view on the relationship between written rate change and lost trend.

Particularly with rate change for the quarter of 3.3 points, dipping just below our current estimate of loss trend, which is about 4 points in the aggregate, I would like to point out that underwriting margins are impacted by a number of other factors including changes in exposure, underwriting actions, business mix, the impact of new business, weather, and so on.

So particularly with written rate and loss trend in such a narrow band, we’d caution you against drawing conclusions about the outlook for underwriting margins based solely on those measures. To wrap it up, I am pleased with our strong results for the quarter. And in terms of execution going forward, we intend to pursue more of the same.

And with that, let me turn it over to Doreen..

Thank you, Alan. I would like to begin by saying how excited I am to again work with Tom Kunkel and his leadership team in managing our market-leading Bond & Specialty Insurance business. Also, I am really proud of the progress we’ve made in Personal Insurance and look forward to continuing to work with Greg Toczydlowski and his team.

Now for the results. In the Bond & Specialty Insurance segment, operating income of $165 million was 38% higher than the prior-year quarter. The increase was driven by higher levels of favorable prior-year reserve development, along with improved underlying underwriting margin.

The underlying combined ratio for the quarter was a very strong 81.7%, a 4-point improvement from the prior year, primarily due to exiting our management liability excess-of-loss reinsurance treaty as well as earned pricing in excess of loss cost trend across the segment.

Net written premium for the quarter was $556 million, an increase of 1% compared to the prior year. Across our management liability businesses, retention of 84% was consistent with recent periods in the prior year, while new business of $34 million was down slightly from recent periods.

Renewal premium change, which can be somewhat lumpy due to variations in things like limits written, liability attachment points, and policy duration, was 4.6% for the quarter, up somewhat from the second quarter. In sum, strong profitability through Bond & Specialty’s continued underwriting discipline and market leadership.

Turning to Personal Insurance, operating income of $239 million for the quarter was down 9% compared to the third quarter of 2013, driven by lower favorable prior-year reserve development in Homeowners.

The underlying combined ratio was 84% in the quarter, an improvement from 2013 of more than 1 point, primarily due to the benefits of earned pricing that exceeded loss cost trends, our previously announced expense-reduction initiative, and lower Homeowners commissions, partially offset by a higher mix of new business.

As it relates to our expense reduction, to-date we have executed on initiatives responsible for about 90% of the $140 million run-rate savings target. As we have mentioned in the past, about half of these reductions relate to claim management expenses, the impact of which shows up in the loss ratio.

We remain on track to achieve the full run-rate savings by the end of this year, in line with our original expectation. Looking at agency Auto, retention remained strong at 82%, while renewal premium change was about 6%.

We also are extremely pleased with the progress we have made on new business production, driven by the impact that Quantum Auto 2.0 is having. New business premium of $166 million is more than double the third quarter of 2013, with 90% of the $166 million coming from Quantum 2.0.

This increase in new business drove a year-over-year increase in net written premium of 3%. And, as Jay noted, policies in force increased from the most recent quarter for the first time since the second quarter of 2011.

As for the rollout, Quantum 2.0 is now live in all but a handful of prior Quantum states; and our expectation is that these remaining states will go live over the next quarter or two.

Turning to agency Auto profitability, the underlying combined ratio of 96.1% for the quarter was an improvement of 1.5 points over the prior year, driven primarily by the expense initiatives and earned pricing that exceeded loss cost trends, partially offset by the impact from higher new business volume.

Our current view of overall Auto loss cost trend is about 3%, a slight improvement from what we communicated in recent quarters driven by some moderation in bodily injury severity and looking at the improvements in revenue and profitability, we believe our fundamental changes have made our auto product more competitive.

Looking at agency homeowners and others production was strong in the quarter with renewal premium change of about 6%, while retention remained at 84%. New business volume of $95 million was up about 30% from the prior year quarter, due to some lift from higher volumes in Quantum 2.0 overall home production is in line with our expectation.

From the profitability perspective, the underlying combined ratio of 70.1% was an improvement of 1.5 over the third quarter of 2013, driven by earned pricing that exceeded loss cost trend as well as lower expenses.

So overall in personal insurance a great quarter with both strong financial results and production metrics and we remain pleased with the results of the Quantum 2.0 overall so far. And with that, I’ll turn the call back to Gabi..

Thank you. Julian, we’re now ready for the Q&A portion. I would ask participants to please limit yourself to one question and one follow up..

Thank you. [Operator Instructions] Our first question comes from the line of Jay Gelb from Barclays. Your line is now open; please proceed with your question..

Thank you. I want to touch base on exposure growth in business insurance. It appears to be accelerating in the middle market, commercial business and select is showing more stable growth.

Can you talk about the differences that are driving that?.

Yes, the difference in middle market versus select?.

Yes, in terms of – the rate of change in exposure growth being stronger in middle market than select?.

Yes, the exposure in fact really isn’t from sales and payroll, its – and if you look at, look at the starting and ending point, you’re probably looking at the webcast. If you look at the starting and ending points, it’s actually a pretty straight line from those two end points.

The way we calculate the number, the impact of audit premium creates a different quarter to after we report exposures in particularly in the middle market. And so, we would expect that to develop over time into more of a straight line..

I think – this is Brian; the other point on select, lot of that exposure growth is values on the property component of C&P..

And that’s been an affirmative effort on our part to try to improve the values..

Okay.

So any other underlying difference in terms of exposure growth on the small business versus middle market?.

No there isn’t really, other than on the small side we’ve really been working on the – the insurance to values and in middle market it really is a function of how we account for the audit premium in the exposures..

Okay. And then I had a separate question on capital return, so year-to-date if my math is right, share buybacks plus dividends are $2.9 billion, operating income $2.6 billion, so clearly capital return running well ahead of operating income on the order around 110%.

Can you give and you had a prior comment also saying that there is a continued level of excess capital being generated.

I don’t know if you would care to update us on the capital management strategy in terms of could that that gap between capital return on operating income continue to grow over time similar to what we’ve seen this year?.

Hi Jay, this is Jay Benet. Thanks for asking that question. What you’re really seeing is a timing difference in the generation of the excess capital versus the timeframe in what is purchased, its repurchased.

So and we look at, particularly year like 2014, one of the things you have to take into account is, how did the end of 2013 come out and it was a very strong fourth quarter and we did our year end capital calculations, we found that we had some excess capital that we carried into this year.

So, we’re playing a little bit of catch up now, but there is no change in strategy, there is no change in execution. It really goes back to the words that we used to describe, the program which is, we’re generating it over time primarily through income and maintaining the capital we need to support our businesses.

So that the ratings are maintained and the posture of the balance sheet doesn’t change. And then to the extent, we have the excess capital that’s getting generating we’re buying that over time. But it’s really, it’s really driven by earnings. And you have to look at it, more broadly than just a nine month period..

Okay, so based on that we should still generally think about buybacks and dividends being roughly equal to annual operating earnings?.

I’m not saying that’s roughly equal, in our 10-Q and 10-K we talk about having enough capital to support the growth in the business, occasionally we make pension contributions to a qualified pension plan, so there are other things that will utilize capital in the place. But, the creation of capital is from the earnings..

Thank you..

Thank you, next question please..

Our next comes from the line of Michael Nannizzi from Goldman Sachs. Your line is now open, please proceed with your question..

Great thanks, just a couple of question, in terms of the auto business. We’re trying to figure out, you talked about 6% rate increases and we’re trying to square that with the rate declines that you’ve taken and talked about taking on the Quantum business that you’ve repriced.

Can you help sort of square those two things?.

Michael, this is Doreen.

Are you looking at the webcast with renewal premiums change?.

Yes..

It would be and also our existing book on the renewal book of business..

Okay. So, for a business that you are Quantum is for new business only, is that so that’s your, okay..

Quantum 2.0 is for new business only..

Got it, okay that makes sense.

And then, one question on just on business insurance, kind of looking at the margins there and what is, how much of an impact the year-over-year comparison does Dominion having if at all? And how should we think about, I trying to – I know you mentioned some non-cat weather but, just trying to parse out sort of rate versus loss trend in underlying margin? Thanks..

Hi its Alan Schnitzer. On the Dominion as we get – as we get sort of year end post close we’re going to try to resist the temptation to breakout the impact of that in particular. I will tell you that at least in the current period it’s, leaving out the unusual weather that we’ve had in Canada, the hailstorm in Alberta and floods in Toronto.

But leaving that out the Dominion was probably about a half a point on the loss ratio a couple tens on the expense ratio. But, we’d really like to move away from quantifying the impacts of that transaction, just gets harder and harder to do as we enter there..

Sorry and its Gabi, just to be clear that’s because it wasn’t in the prior quarter, he is not setting a level of Dominion..

That’s right..

Got it, okay. Okay, thank you..

Great, next question please..

Our next question comes from the line of Kai Pan from Morgan Stanley. Your line is now open, please proceed with your question..

Good morning and thanks for taking my call. Just on the margin, just to follow on that, is that you mentioned some non-cat largely like a weather related losses.

Is that how much, if you can quantify that in terms of how much that to track on the 50 basis point deterioration year-over-year and also is that a pattern where I have seen in the past few quarters, because I guess your peers reported some sort of non-cat large losses in past few quarters as well?.

We’ve been observing for a couple of years with that the weather seems to be getting more extreme and so this is – is, consistent with what we’ve been seeing over couple of years in quarter weather was worth something like a point and a half on the delta..

Its Jay Benet, I would add to that, when you’re asking are there trends involved, we are always going to have quarter-over-quarter differences associated with things like non-cat weather or large losses, what we’re trying to do is point that out to give you some insight into what’s taking place.

But, I wouldn’t say that in all cases when we say the weather is higher it means the weather was terrible, I mean it’s just higher than it was last year. So, I wouldn’t call this a really bad weather quarter, but last year’s third quarter was actually a little on the favorable side..

That’s great. My second question is on the reinsurance side. Just given what’s happening in the marketplace in reinsurance, basic pricing coming down, various alternative solutions, and just wonder what is your overall reinsurance strategy.

Are you thinking about setting up some alternative structure, including internal or captive reinsurers?.

Hi, it’s Jay Fishman. We are certainly looking at everything. There’s obviously a lot of activity in that space. We are not a big utilizer of reinsurance, broadly speaking.

When you look at the amount of ceded premium that we put out to the marketplace, it really isn’t enough to jump through a lot of hoops and incur a lot of cost to create something that looks snappy but doesn’t really accomplish much financially. So that doesn’t mean we are giving up.

I am mindful of the fact that it is getting a tremendous amount of attention, so I have actually been spending some of my own time in making sure I can actually understand it and make sense of it. So far, without a lot of effect, to be completely blunt with you; but we will obviously keep looking.

I don’t anticipate for us – not to say that somebody else. I don’t anticipate that the change in reinsurance pricing in any broad measure will have a meaningful impact on us. Again, not because – for example, our property cat treaty wasn’t less expensive; it was. But it is just not enough on a premium base of our size to make a substantial difference.

I have also been asked whether we would be interested in building a book of business and in effect arbitraging it against the reinsurance opportunity. And I am always mindful that when you take on a risk on the right side of your balance sheet, there is some permanence to it; and the reinsurance profile on the left may or may not be permanent.

And you’ve got to be very cautious and careful about not finding yourself in an unreinsured position or in a mismatch, which can happen and has happened. I think back to September 11 and what a bunch of reinsurers did shortly in the days thereafter; and lots of us found ourselves with primary exposure without underlying reinsurance to cover.

So there is a lot of moving parts here, and we are sure looking at it pretty hard. But so far I would say nothing that really excites me at least a great deal..

Thank you so much for the answers..

Michael, let me just clarify, just so we pull these two questions together and don’t leave any confusion here. What we said was there was about a 2-point increase in the combined ratio due to both weather and The Dominion. That was 2 points all in; about 1.5 point of that is weather and about 0.5 point of it is Dominion..

And again, just speak to direction, please..

Increase..

An increase of 1.5 point due to weather and an increase of 0.5 point due to Dominion..

That’s right..

Next question please..

Our next question comes from the line of Vinay Misquith from Evercore. Your line is now open. Please proceed with your question..

Hi. Good morning. The first question is on pricing and loss cost trends. I believe you said not to focus too much on pricing being up at about 3.3% and loss cost trend at about 4%.

But just thinking about it at a 50,000-foot level, should we expect a small amount of margin compression next year and also, looking at the loss cost trends, if you could help us understand. I mean peers are looking at loss cost trend in the 2% to 3% range; your 4% number seems a little bit high.

Just wondering if there is some amount of conservatism in that..

Well, I think perhaps we will split the question between myself and Alan. First, the reason that we are just cautioning against evaluating 3.3% versus 4% is that that arithmetic is pretty easy to do, but doesn’t take into account all of the factors that affect the profitability of our business.

We have reminded people frequently that a not insignificant amount of exposure base – particularly, for example, in our small commercial business, will act as an increase in rate absent a change in loss profile.

As an example, to the extent we collect more premium due to inflation adjustments on property, unless the loss exceeds what would have been the previous total insured value level, that increase in exposure functions exactly the same as rate. And so it is easy to talk about a widening margin and I am going to make up numbers here.

It’s easy to talk about it when you’ve got, to make up a number, 7% rate and 4% loss trend. And I suspect it would be easy if we were talking about 1% rate and 3% loss trend. But in and around the number, it is just not that precise to conclude that within 7/10 of a point that margins will necessarily contract or not contract.

Candidly, I am not – our 10-Q is going to say in Business Insurance or does; I don’t know if we filed it this morning; we did file it – says that we anticipate margins to be flat, equivalent, in Business Insurance into 2015. And that is our best judgment at the moment.

It’s what’s funny, people seem to think that there is a stunning amount of difference between talking about plus 0.2 versus minus 0.2, but they understand that there is no big difference between plus 2.2 and plus 1.8. It is the same 4/10; it just happens to be around a different baseline number.

So our caution is simply to let you know that notwithstanding all of our analytical skill and insight into the numbers, this is getting pretty precise to make arithmetic calculations based on these numbers. We just caution against it..

On the second question on loss trend, hard for us to comment on anybody else’s loss trend. But I would suggest you might want to look at mix..

Okay. That’s helpful. Just as a follow-up, the Homeowners commission expense ratio was low. I was just curious to why that was. Thanks..

Can you repeat the question please?.

I couldn’t hear it. I’m sorry..

Sorry. On the Homeowners, I believe the commission expense ratio was lower this year versus last year. I was just curious why..

We did reduce the Homeowners commission rates. Yes; we implemented those in probably the middle of 2013, maybe a little bit earlier than that..

And some of the expense initiatives we had from – relative to Quantum was also impacting Homeowners..

Well the – yes, exactly. So about 25% of our expense reductions fell to the Homeowners line..

But the Homeowners commission expense number fell because of a change in the rate that we pay on Homeowners business. We implemented that, again, in the middle of 2013. That is the driving factor there..

Okay. Thank you..

Thank you. Next question please..

Our next question comes from the line of Jay Cohen from Merrill Lynch. Your line is now open. Please proceed with your question..

Yes, just a couple of questions. I guess maybe the first quick one for Doreen. You had mentioned, I think it was the Specialty and professional liability business that you had changed your reinsurance session there, and that helped earnings. Can you talk a little bit more about that? And then separately, asbestos.

Surprised no one has asked you yet about it, but another very sizable charge. Can you talk about really what you are seeing there now? It just feels as if this is an annual sizable charge, and you’re almost going on a pay-as-you-go basis, and we should almost expect this kind of charge going forward.

I am wondering if you can give more insight into the asbestos..

This is Doreen. I will talk first about the Bond & Specialty Insurance reinsurance treaty, and then I will turn it over to Jay Benet for asbestos. But as I think we reported in the past, the decision was made to exit from our management liability excess-of-loss reinsurance treaty; and that decision was made at the end of 2013.

And essentially what you are seeing is that, as we looked at our book of business both from a limit standpoint, the quality of the underwriting, we just felt like the ceded premium didn’t make sense given the performance of the book.

And so if you were to look at the underlying combined ratio being up about 4 points, it is about 3 of that underlying improvement. And it is really just looking at what premium you wanted to pay for your loss content. So a great decision was made, and we see it in the results..

That’s helpful. Thanks, Doreen..

Hi, Jay; it’s Jay. As it relates to asbestos, as you know we follow this very closely every quarter and we supplement the quarterly procedures with, what we refer to is the, very in-depth claim study that gets done annually and we’ve completing it in the third quarter.

So what’s going on with the data, first of all every time we, put an asbestos reserve it’s our best asbestos of what the totality of losses will be and as you know there are pages and pages in our 10-K and 10-Q describing all the uncertainties associated with asbestos and what’s taking place, we’re not taking place in the environment.

So in terms of the overall environment, I’d remind everybody that, we’ve had the asbestos exclusion in our policies for decades at this point, the product is in use the way it, its formally used decades ago.

And the assumptions that we’ve build in to the reserves are that there will be tailing off claims over time based on the ageing population and all the other dynamics to go along with that. So, we are making these estimates and then, periodically looking to see are the estimates holding up in terms of the data that’s emerging.

And what’s been happening in the last couple of years and we can come up with anecdotes to perhaps why it’s happening, but what keeps happening over time is that our estimates which are the best estimates of the point in time are proving to a little short as new information emerges.

And in talking to our claim people who deal at this and, asking the ageing question, why doesn’t this stuff drop off at the rate that we had expected, some of the anecdotal answers tend to be and I underscore anecdotal that well perhaps we have a situation where, years ago given where, general medicine was at that point, people were dying of different things like heart attacks or forms of cancers and with medical advances, perhaps living longer and by living longer and not buying of those particular diseases, mesothelioma might develop and, suddenly now you have an asbestos claim.

So, part of this is, the estimation process, part of this is just, trying to understand the trends that are going on, but I welcome the day when we can all watch a sporting event and not to see a point of certainty, adds you know saying if you ever heard the word mesothelioma call this number.

But that’s the environment, but I will say that there isn’t a fundamental change in the environment that it’s not new theories or anything like that its more matter of trying to estimate, what’s actually out there. I hope that was helpful..

Yes that was helpful Jay, thank you..

Next question please..

Our next question comes from the line of Larry Greenberg of Janney Capital. Your line is now open, please proceed with your question..

Good morning and thanks for taking the question.

I respect that you don’t want to get into too much detail on Dominion, but given the fourth quarter will be the first where we’re on an apples-to-apples basis it would be helpful to just know what Dominion is growing at organically and I think when you did the deal, you expected it to be modestly accretive to 2014 and I’m wondering if that’s coming to fruition?.

Larry it Alan, I’m just trying to process the questions here.

In terms of, on Dominion I should just take a step back and say that we’re very pleased with the transaction the integration is going very well, they are very pleased with the local team in Canada and the way the two teams are integrating and very pleased with the way that the both teams in Canada and our U.S. businesses are integrating.

So, I should really start off and I think this is the important message about the Dominion its going very well, there is no surprises and we’re enthusiastic about the deal today as we were and we signed..

And let me just add in, because it’s a great time to do it. I’m not insignificant a portion of the rationale here was to export and make available in the Canadian marketplace, product and expertise that we had here in the U.S. that had not been developed up in Canada that is still very much the plan.

So we are at the early days here, we’re very much at the early days, I’m sorry but that was helpful..

Larry in terms of your specific questions, I think we’d really prefer on a business’s size probably not to go down to that level of detail other than to say it’s on track there is, whenever you do a deal of this size there is always some surprises that are a little bit good and a little bit bad that all of those are within the range of expectations and we’re very, very pleased with the transaction..

Okay, fair enough..

Okay, next question please..

Our next question comes from the line of Al Copersino from Columbia Management. Your line is now open, please proceed with your question..

Thanks very much. I was wondering if you all had available or were willing to share for the bond and specialty segment and for the personal segment.

We have the renewal premium change in the slide deck, I was curious if you are able to give us the rate changes specifically?.

It operates on – Brian and I will chat here, but those businesses in particular, it’s really quite difficult to parse the rate change and renewal premium change, because they operate so much together.

For example the policy limits right so, if you got an inflation element in the underlying property for example that’s going to well shift premium, but that happens in many cases in effect automatically. So we don’t – we don’t track rate and renewal premium change at the granular level that we can in other businesses to provide that breakout.

It’s not that it’s not an appropriate question, it’s with the business dynamics under it operate differently. And therefore really can’t be parsed with quite as much precision..

And this is Doreen. We do look at it to Jay’s point, but we find the combination of them with renewal premium change to be the more meaningful way to look at the business. And we’d never really disclose that level. So we can look at it, but we just don’t want to make sure….

In most, yes in most cases in our personal lines of business, the fundamental exposure is not changing and it is the total price change that is really reflective. And Doreen you could talk about the Bond..

You can get, you get changes, but we just don’t parse at that level..

Bond?.

On the Bond side, I would say and we’ve talked a little bit about the in management liability in particular on RPC and rate such as again the Jay’s point of combined concept of what the limits are the attachment point, the term of the policy so we look at them blended together.

It’s not that we don’t look at them or we just its more meaningful to combine them for us for the business performance..

Okay, well thank you all. I appreciate it..

Great, next question please..

Our next question comes from the line of Meyer Shields of KBW. Your line is now open, please proceed with your question..

Okay great, thanks. Good morning.

Doreen, as there been any change in the competitive environment for personal lines specifically auto over the course of the year?.

What we’ve seen and we’ve watched this pretty closely to see particularly with our commission changes and Quantum 2.0, what’s going on out there.

And I would say in the independent agency channel, we’ve seen some very targeted but, not broad follows in terms of a little bit of people changing commission, a little bit of targeting specifically on price reductions. What we haven’t seen in that channel is anybody really address broadly the cost structure.

And so, no it’s not a major change, we just continue to watch it..

Okay, that good news. Jay you talked earlier about the other factors that can drive margin improvement aside from the gap between rate increases and lost cost trends.

I was wondering are those other issues is that expected trends changes it all?.

Meyer I don’t, is that – is that expected trend changing it all, help me, I don’t understand quite the question..

I’m asking it for the, if the impact of other factors besides the rate loss trend gap and its impact on margin expansion, is that given the improvements you’ve had so far for example in the granularity of pricing and so on should we expect less margin expansion from those other factors going forward that we have for the last couple of years?.

I got it. The answer is, I sure don’t think so. The reason for the caution is simply because it would be, I think, inappropriate to leap to a conclusion that 4% versus 3.3% will, in effect by definition, result in a narrowing margin. It may; I am not saying it’s not.

But there are other factors that go into whether the margin gets bigger or smaller, and you are in the range now of the gap between these two numbers that is, loss trend and rate to be such that these other factors, which always operate, they always operate, could actually produce a different outcome than the simple arithmetic would demonstrate.

And again, the example I used before, with a rate of 7% and loss trend of 4%, this is just a loss treat of only [indiscernible]. It is an easy call. And with loss trend of 4% and rate of 1%, it would also be an easy call. But you are at a range now where it is not an easy call.

I am not saying from the outside looking in, by the way; I am saying even from the inside it is not an easy call to absolutely say it is going to expand or it is going to contract. It is on the line, in effect, right now, and we don’t know how to be any more precise than we are being with you. This is as good as we have to offer..

Okay. I understand. Thank you..

Next question please..

Our next question comes from the line of Paul Newsome from Sandler O’Neill & Partners. Your line is now open. Please proceed with your question..

Good morning. Thank you and congratulations on the quarter. Just recently I was doing an agent tour, and they were talking about a little bit more aggressiveness in the spread between new business and old – and renewal business on the commercial business.

I wanted to see if you perceived any change there in that, either in Travelers or in the marketplace..

Hey, Paul, it’s Alan. Let me comment on us; and I am not sure we are going to comment more broadly on the market. But it’s always dangerous, I think, to take one conversation with an agent and extrapolate from that.

I would say from our data we see that over the last couple of years, seven or eight quarters, there has been a pretty consistent gap between new and renewal. But if you look back over a longer period of time, I would say that gap is reasonably tight at the moment on a longer-term view..

Then as a separate question, it has been a long time since we have talked about some of the direct channels and other experimentation that you have been working on over several years.

I would like to know if Quantum 2 is sort of where we are at with respect to what we are looking at for the future of Travelers for the next couple years, or if there are some ongoing efforts still to build out other channels..

This is Doreen; I will just speak to that. So I will tell you that Quantum 2 is definitely a positive for direct-to-consumer as well as the agency channel. It was a product that we thought would be attractive across channels. So as we look at our metrics around conversion and sales, we believe that Quantum 2 has definitely had a positive in that.

In addition to that, we always look for process improvements. We have also been very focused on looking at digital marketing and how to use our dollars in a very targeted way for direct. We also have plans, and I think we have talked to all of you in the past.

This is not just direct, but we will continue to look at where we can enhance the property products as well as looking at how we bring accounts together; and that will be both a benefit for the agency channel as well as direct..

Great. Thanks for the answers..

Great. And this is our last question. Thank you..

Our last question comes from the line of Josh Stirling from Sanford Bernstein. Your line is now open. Please proceed with your question..

Hi, good morning, and thank you. Congratulations on a great quarter and thanks for fitting me in. So Jay, pricing has been slowing. It’s come off, what, 3% in the past year; and if you simplistically project forward another year, at last year’s pace pricing probably would be zero or maybe even a slight decline.

And so I think big picture, we are all just trying to figure out whether the industry’s pricing decline is going to stop at something like inflation. Does it go to zero, or does it go negative? I recognize you guys don’t want to talk about other companies.

But to keep it focused on Travelers, if I understand all the back and forth around the margin outlook and Alan’s comments, I think you’re basically saying that you will keep pricing more or less in line with inflation over the next year or so.

Is that right?.

Well, I can certainly tell you what our strategy is. I have no problem sharing that. And obviously, the ability to execute in a business environment – we may succeed; we may not. We haven’t changed anything about the way we are approaching individual accounts. I remind everybody of this all the time.

Right now there is an underwriter in Kansas City, right now, who is sitting with an agent having a conversation about one account. And they are not thinking about the overall market; they are not thinking about inflation. They are thinking about the return on that account and how do I improve it.

So you’ve got to start with the premise that this really does start at the bottom and work its way up.

As accounts have become – as increasing number of accounts have now had several years of increases and are now producing profitability, returns, however, you like to look at it, that really fall into the boy, we are glad we have that account category, we ask our people to be thoughtful, to be judicious about the way they approach every individual account.

It doesn’t have to be a straight line. It can be a stair step. It can be driven by the local market. It can be driven by the relationship with an agent. It can be driven by the size of the book that we have with the agent. It can be driven by whether there has been claim problems or not on that account.

All of those things go into the pricing of an individual account. Now, what we are trying to get to is a point where over time – we come back to over time all the time that we manage to offset the impact of loss cost by either rising prices or self-help through efficiency or expense reduction.

And I point to the kinds of things that Greg Toczydlowski and the group have done in Personal Insurance. That dollar saved in expense is as good as a dollar raised at the point-of-sale in rate, in fact, arguably even better. And now I will speak really just personally, because I am not sure I am speaking for the whole place.

I am hopeful, maybe even cautiously optimistic, that we will not – and I said this by the way 10 years ago – maybe not 10, maybe 8 years ago. I personally believe that the property and casualty business will have a meaningfully lower level of cyclicality. Never said zero, but always said a less, lower amplitude of that cyclicality.

There are a host of reasons why I believe that. Analytics and data are just one, but a very important one. And I think it has proven on the way down before we entered into this cycle. I think it has been proven here on the way up. I am hopeful, maybe even optimistic, that that will turn out to be true on the way down.

We don’t see anything in the way in which business is done at the point of sale in the market that would suggest that we are at a precipice, that would suggest that something fundamentally is going to change next month, next quarter, or frankly even next year. Now, we could be dead wrong about all this; it’s possible we could be dead wrong.

But we are focused on over time maintaining our margins. It doesn’t mean that an individual account has to have a price increase every year. It doesn’t mean that in a quarter the rate won’t come under loss trend. I would like to know where the mix of business is that is coming up for renewal.

The answer to success for us is in the granular analysis more than the headline numbers. So that’s honestly how – we’re never anything but honest – but that is how we see the marketplace environment. That is how we intend to operate. We will see if it sustainable. Again, I am hopeful and maybe even optimistic. There is a thoughtfulness.

We understand – but we are not unique in this – we certainly understand the world of risk-taking. I have a lot of respect for a lot of other companies out there because I see how they operate, and they also have a great respect for risk-taking. And that I think is kind of different than it was perhaps 15 years ago.

There is a different level I think of understanding and perception of what it means to commit your shareholders’ capital to a risk or a series of risks and turn out to be dead wrong.

And I think there is a healthy regard for that, and that has resulted in a set of industry-wide better analytics, better risk-taking profile that I think, by the way, is good for the customer; I think it is good for the agent; and I think it is good for the markets. Wild cyclicality up or down is actually bad for everybody.

And better insight, better data, better analytics is actually better for everybody. You get better analysis, you get better, more thoughtful pricing related to risk. So that is a somewhat fulsome answer, but that is how I feel about it..

That’s really helpful, Jay. I guess just one other question. Related to the personal lines business, you guys have made big inroads with Quantum 2, sort of stabilizing your volumes there, getting a more competitive product to market. I am wondering what your plans are for Homeowners.

It’s been – a decade ago probably wasn’t a very good business, but it sure seems like a very profitable one now. But it has been shrinking for many years. I am wondering what – when maybe we see you guys turn the corner there and start to use it as a growth engine. Thank you..

I’m going to ask Doreen to answer. But just because I am allowed to be so proud of what the organization has done. So as far back as we see the data having, I will say, integrity, and that is at least 10 years and maybe more on a comparable basis, we have had 1 year in our Homeowners business with a combined ratio over 100 and that was 2011.

That was the Joplin storms and the Tuscaloosa storms. So whether it was Ike, Gustav, and Dolly or Rita, Katrina, Wilma, it didn’t matter. The way that business – actually I will come back to my previous comment about risk-taking. I am just so proud, candidly, of the way that whole organization has operated and thought about risk-taking.

So we love the business, and it has been a terrific performer for us. And actually I personally think in the future as the potentials shift between Auto and Homeowners, I think it could very well do some shifting over the next 10 years. I love where we are; but with that, Doreen, you can take the rest..

Oh, thank you. And obviously, following on what Jay said, I will tell you that we spent and it goes back to I think one of the earlier questions, just about looking at weather.

You probably recall we looked at pricing, we looked at underwriting, we looked at concentration, and we feel really that we are operating now from a position of really great returns.

And we see that when we have a competitive Auto product that also helps drive Home, and we are going to look for those opportunities where we can tune the product, so that in those areas that we think it makes sense to grow, that we will.

So again, we weren’t planning just, we talked about Auto where we thought we were going to be flat to comparing ourselves fourth quarter to last year. We knew Home was going to lag a little bit behind that. So everything we are looking at with production is really according to what our expectations were.

But as Jay said, we really were a property underwriter; we like the product; and we’re going to look for the opportunities going forward..

Great, Doreen, Jay. Thank you so much..

This will conclude our call. As always, I am available in Investor Relations for any follow-up questions. Thank you for joining and have a great day..

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