Prompt:
Human: Before we begin, I'd like to direct all participants to our website at www.
I will briefly review our fourth quarter results before I hand the call over to Kenneth.
The fourth quarter of 2019 marked a return to profitability for Teekay, as we recorded consolidated adjusted net income of $31 million or $0.31 per share compared to an adjusted net loss of $2 million or $0.02 per share in the same period of the prior year.
We also generated total adjusted EBITDA of $324 million, an increase of $113 million or 53% from the same period in the prior year, excluding the contribution from Teekay Offshore which we sold in May of 2019.
Our fourth quarter consolidated results were positively impacted by significantly stronger spot tanker rates at Teekay Tankers, the start-up of various growth projects and higher charter rates secured on certain LNG carriers at Teekay LNG, improved results from our directly owned FPSO units and lower G&A expenses across the group.
In addition, we narrowed our consolidated adjusted net loss in the fiscal year 2019 to $19 million from $53 million in 2018 and we continue to expect 2020 to be a profitable year.
Teekay Parent generated positive adjusted EBITDA of $14 million in the fourth quarter, which includes EBITDA from our directly owned assets and cash distributions from our publicly traded daughter entities.
Our results were up compared to the fourth quarter of 2018, mainly as a result of lower interest expense due to bond repurchases over the past year and our bond refinancing completed in May 2019, higher contributions from the Banff and Hummingbird Spirit FPSO units, a 36% increase in TGP's quarterly cash distribution and lower G&A expenses.
Overall, we are expecting another strong Q1 -- a strong quarter in Q1.
On the balance sheet side, in January 2020, Teekay Parent eliminated $52 million of debt guarantees previously provided to Teekay Tankers as a result of their $533 million refinancing completed during that month and we fully repaid the remaining balance on our 2020 unsecured bond with cash.
Turning to Slide 4.
When we presented at our Investor Day in November, our key message was that over the past three years we have significantly derisked the Teekay Group and that we expect stronger earnings and continued balance sheet delevering across our businesses.
We believe that the derisking of the Teekay Group has set us up to not only weather but actually continue to thrive during market volatility.
First, let's start off on the near term.
On the gas side we have significant declines in LNG prices in Asia and Europe with Asia reaching levels below $3 per MMBTU, primarily due to the coronavirus outbreak and milder winter weather, which has put pressure on spot LNG shipping rates.
On the Tanker side, crude spot tanker rates reached the highest level since 2008 due to positive underlying tanker supply and demand fundamentals, normal winter seasonality, as well as one-off events such as US sanctions on COSCO that removed 26 VLCCs from the trading fleet, floating storage ahead of the implementation of IMO 2020 and the removal of vessels from the global trading fleet to retrofit scrubbers.
However, the crude spot tanker market has come under pressure in recent weeks on the back of the coronavirus and the US lifting sanctions on COSCO with the former leading to a downgrade in oil demand by the IEA.
Looking ahead, we believe the medium-term fundamentals remain intact with a record year in 2019 for new LNG projects reaching final investment decision that are expected to start up in 2022 onwards, and long-term demand for LNG expected to rise by 4% to 5% per year to 2030, as LNG continues to displace coal.
For crude tankers, we see strong underlying supply and demand fundamentals for the crude tanker order book at 20-year lows, measured as a percentage of the existing fleet.
Turning to Slide 5.
We have provided a graph of our annual total adjusted EBITDA over the past three years that adjusted for our sale of Teekay Offshore has increased by 66% since 2017, primarily underpinned by our stable and growing cash flows from our gas business that have increased by 52% during this time.
We expect our total adjusted EBITDA to continue to grow in 2020 with our gas cash flows expected to grow another 10% to 14% in 2020 compared to 2019 and a full year of potentially stronger earnings from our tanker business.
Turning to Slide 6, I'll provide a brief update on our three directly owned FPSOs.
On the Foinaven FPSO, we are now in advanced stages of discussions with BP for new contracting structure on the unit to address the negative EBITDA that we have incurred on this unit, and we'll provide an update to the market at the appropriate time.
The Hummingbird Spirit continues to operate on its contract out to 2023 and the customer continues to execute on its previously announced drilling campaign aimed at extending the production life of the field and we are continuing to pursue a divestment of this asset.
On the Banff FPSO, as highlighted at our Investor Day in November, there will likely be no further contract extensions on the existing field as a result of low gas prices, and we're now preparing for the cessation of production on the field and decommissioning commencing in mid-2020, and we're marketing this unit for sale.
Our FPSO results improved significantly in the fourth quarter as the units ramped up production, following plant maintenance in the third quarter and the recognition of approximately $8 million in operational tariff revenues from the Foinaven, which is typically recognized in the fourth quarter of each year.
Looking ahead to the first quarter, we expect our FPSO cash flows to be lower, mainly due to the annual operational tariff, revenue recognized in the fourth quarter and higher operating expenses in the first quarter relating to the Foinaven.
As mentioned earlier, the negative EBITDA is driven all by the Foinaven FPSO which we are in advanced stages of addressing.
Consistent with our recent Teekay Group Investor Day, we have decided to change the order of our earnings calls with Teekay Corporation going first, followed by Teekay LNG and then Teekay Tankers.
On Slide 7, we have summarized Teekay LNGs recent results and highlights.
Teekay LNG Partners report a strong fourth quarter and fiscal 2019 results that were within its guidance, generating total adjusted EBITDA of $184 million and adjusted net income of $50 million or $0.56 per unit, up significantly during the quarter compared to the same period of the prior year as growth projects continued to drive higher earnings and cash flows.
We expect these results to continue to grow in 2020 with adjusted earnings per unit expected to be 45% to 73% higher than 2019.
Teekay LNG has reached an important milestone with the completion of its growth program, with the delivery of its fifth and sixth 50% ARC7 LNG carrier newbuilding for the Yamal LNG project, which immediately commenced their respective 26-year charter contracts, as well as its 30% owned Bahrain regas terminal completed mechanical construction and commissioning, and began receiving revenues in early January.
Also in early January, Awilco LNG fulfilled its obligation to repurchase two of TGP's LNG carriers, resulting in receipt of over $260 million in cash that was used to delever its balance sheet and increased its liquidity by over $100 million.
Additionally, Teekay LNG continues to execute on its balanced capital allocation strategy, which includes prioritizing balance sheet delevering for now and second consecutive year of over 30% increase in quarterly cash distributions with a 32% increase commencing in May 2020.
As outlined on the graph on the far right, this approach has allowed for significant delevering from a proportionate net debt to total adjusted EBITDA of 9.1 times in 2018 to 6.4 times based on our Q4 '19 annualized results, pro forma for the Awilco transaction that I touched on earlier.
This is creating significant equity value for all Teekay LNG unitholders with more to come as Teekay LNG approaches its target leverage of around 4.5 to 5.5 times and which is expected to result in significantly increased financial flexibility.
Lastly, since December 2018, TGP has opportunistically repurchased 3.5% of its outstanding common units at an average repurchase price of $12.85 per unit.
Turning to Slide 8.
Teekay Tankers reported record high adjusted net income in the fourth quarter, generating total adjusted EBITDA of $132 million, up from $62 million in the same period of the prior year and adjusted net income of $83 million, or $2.47 per share, in the fourth quarter, an improvement from $14 million or $0.42 per share in the same period of the prior year.
TNK's results were driven by stronger spot tanker rates which reached the highest levels since 2008.
This strength continued into the first quarter of 2020 and I'm pleased to report that the tanker rates we have secured so far in Q1 are even higher with 77% of Q1 Suezmax days fixed at $51,700 per day and 63% of Q1 Aframax and LR2 days fixed at $38,600 per day compared to $39,100 and $33,000 per day in the fourth quarter, respectively.
Looking ahead, TNK continues to maintain significant operating leverage, as highlighted in the graph on the bottom right hand side of the slide.
On an annualized basis, the rates that we achieved in the fourth quarter of 2019 would translate to over $320 million of free cash flow or over $9.50 per share.
This is compelling relative to TNK's closing share price yesterday of $12.66 per share and equates to a free cash flow yield of 75%.
Turning to Slide 9.
In spite of the market volatility, we have continued to execute on our business plan to create intrinsic value across the Teekay Group as laid out on this summary slide.
We also continue to focus on further simplification of the group, which includes the ultimate divestment of our three FPSOs, as well as a potential IDR monetization.
With that, operator, we are now available to take questions.
 Assistant:

Chosen response:
teekay corporation q4 adj earnings per share $0.31 excluding items.
q4 adjusted earnings per share $0.31 excluding items.


Prompt:
Human: Before we begin, I would like to direct all participants to our website at www.
Before I hand the call over to Kenneth, I will briefly review our financial results.
In the fourth quarter, we reported a consolidated adjusted profit of $8 million or $0.08 per share, up from 95,000 in the prior quarter.
We also generated total adjusted EBITDA of 182 million, up from 165 million in the previous quarter.
Our Q4 results were stronger mainly due to a modest improvement in spot tanker rates.
In fiscal year 2021, we reported a consolidated adjusted net profit of $20 million or $0.19 per share, compared to 83 million or $0.82 per share in the prior year, and generated total adjusted EBITDA of 721 million, compared to 1.1 billion in the prior year.
This decrease primarily reflects the exceptionally strong tanker market in the first half of 2020.
Please note that our consolidated net income and total adjusted EBITDA results for Q4 and fiscal 2021 include Teekay LNG, even though Teekay LNG's results are presented as discontinued operations in our financial statements.
On January 13 of this year we successfully completed the sale of all of our interest in Teekay LNG to Stonepeak, bringing in gross cash proceeds of approximately 641 million to Teekay Parent.
Upon closing the sale, we expeditiously eliminated approximately 330 million of high-cost debt ranging between 5% and 9.25%.
Teekay Parent is now largely debt free with a net cash position of over 300 million.
Looking ahead to Q1, we expect our consolidated results to be lower as a result of the sale of our interest in Teekay LNG in mid-January 2022, partially offset by significantly lower interest expense due to Teekay Parent now being largely debt free.
Turning to Slide 4, I will comment on the steps we have taken the past year to position Teekay for the future.
We expanded our asset light marine services business in Australia through a new strategic long-term contract with the Australian Government Department of Defense in September last year.
We've had a presence in Australia since 1997 and we are now providing services for nine Australian government vessels, which provides a solid and profitable foundation to further grow this business.
We continue to wind down our FPSO business, starting with the balance of the decommissioning of the unit is now completed and we are nearing completion of the recycling of the unit in Europe.
We're now planning for the decommissioning of our remaining two FPSOs, we received the formal notifications from our customers and expect the contracts to end of -- on the Hummingbird and Foinaven in May and August 2022, respectively.
Hummingbird's decommissioning process is well advanced and relatively straightforward.
The Foinaven decommissioning and recycling cost is expected to be largely covered by contractual payment from the customer.
As Vince mentioned earlier, we completed the sale of all our interest in Teekay LNG to Stonepeak with Teekay Parent realizing total shareholder return of 203% and an annual IRR of 12.5% since TGP's IPO in 2005.
Since announcing the TGP Stonepeak merger in early October last year, the team has been working very hard on separating TGP from the rest of the Teekay group and setting up both companies for future success.
We have now transitioned all the gas employees to TGP, which is being rebranded as CP, and we expect the remaining restructuring and transition activities to be completed throughout 2022.
Lastly, we have now transformed our balance sheet and are now largely debt free with a net cash position of over $300 million.
Turning to Slide 5.
We look at Teekays current portfolio.
As mentioned on the previous slide, we have a number of transition activities that will continue throughout 2022 as we are evolving both our organization structure and our business mix.
We're excited about the opportunities to create shareholder value with a lean organizational structure and stronger balance sheet.
Starting with our position in our publicly traded daughter subsidiary Teekay Tankers, which is a well-established platform that provides significant and diversified exposure to tanker market recovery.
We have recently opportunistically invested $10 million of our cash balance to further build our position in TNK, acquiring shares in the open market at an average price of $11.03 per share.
With these purchases we now have an economic ownership of over 31% and voting control of over 55% in TNK.
Based on TNK's closing price yesterday, our current position is valued at $125 million or $1.23 per Teekay Corp share.
Next is our marine services for the Australian government, which is a specialized asset light niche business with a strong counterparty.
This long-term contract business currently contributes as stable annual profit of 5 to $6 million with potential for future growth.
And this is one example where we're able to leverage our operating platform to enhance our profitability with minimal invested capital.
Lastly, as mentioned earlier, our net cash position is over $300 million equal to over $3 per Teekay Corp share, and we can't stress enough the importance of having financial strength and flexibility as a critical ingredient to achieving higher returns and allowing us to be opportunistic and counter-cyclical.
Looking ahead, we stand to benefit from the strong operating franchise and capabilities developed over our nearly 50-year history combined with our renewed financial flexibility.
As the world pushes for greater energy diversification and a lower environmental footprint, we expect to see investment opportunities in both the broader shipping sector and potentially new and adjacent markets.
We believe that Teekay is well positioned to patiently and selectively pursue a range of attractive future investment alternatives that leverage our core competencies, relationships, and institutional knowledge to create long-term shareholder value.
Please refer back to our earnings conference call last quarter where we provided some comments on future opportunities, including the broader shipping sector and participation in the global energy transition.
On a quarterly basis TNK provides a detailed outlook on the tanker market along with various operational and financial updates.
At this time, we believe it will be duplicative for Teekay Corp to also have quarterly earnings calls.
However, our investor conference calls won't be on a schedule quarterly basis, but instead they will be more event driven as we enter into new investments in the future.
Although our investor conference calls would be more ad hoc going forward, we fully intend to maintain transparency and want to continue to have frequent dialog with investors.
So please reach out to our investor relations group.
With that, operator, we are now available to take questions.
 Assistant:

Chosen response: q4 adjusted earnings per share $0.08 per share.


Prompt:
Human: I'm William Prate, Senior Director of Global Financial Planning and Analysis and Investor Relations.
Dave will brief you on our operations and enterprise strategy, and Fay will cover the financials.
After their remarks, we will open the call to questions.
The risks and uncertainties are described in today's news release and the documents we filed with the Securities and Exchange Commission.
We encourage you to review those, particularly our Safe Harbor statement, for a description of the risks and uncertainties that may affect our results.
Additionally, on this conference call, we will discuss non-GAAP measures that include or exclude certain items.
Our third quarter results reflect the returns of pre-pandemic demand across the majority of our geographic markets and verticals.
Our comprehensive and innovative product offerings are resonating with customers during this broad-based market recovery, and we expect this demand environment to continue for the foreseeable future.
While we are certainly encouraged by these positive trends, our financial performance continued to be impacted by the unexpected and prolonged global supply disruptions, inflation and labor constraints that have affected virtually every industry and geographic markets.
The increased demand for our products combined with the effect of macro level constraints on our production capabilities contributed to a record order backlog that varies by product category or region and is now 3 to 5 times our historical averages.
In response, we've taken actions wherever possible to minimize the impact on our operations.
Our plants continue to remain open and operate due to the significant efforts by our global teams to maximize output and to safeguard our customers' experience.
While we expect that these macro headwinds will continue well into 2022, we remain confident in our ability to drive long-term sustainable growth and improve our operational efficiencies to generate long-term value for our shareholders.
We are doing so not only through short-term mitigation actions, but also to the changes we've made and continue to make as part of our enterprise strategy.
To minimize the impact of higher freight costs and related supply disruptions, we continue to prioritize local-for-local and region-for-region manufacturing and sourcing to allow us to manufacture our products closer to our customers.
As an example, we are making the necessary investments to add production of our T16 line to our China plants mid next year.
The T16 is a highly maneuverable battery-operated ride-on scrubber that has proven to be very popular with our customers within the APAC region.
By adding production to the local market, we can help minimize freight costs, improve lead times and better leverage our global production capacity.
We have continued to make capital investments to drive greater efficiency and capacity in all of our plants.
As just one example, we have invested in the new lays in our Minneapolis plant that will improve production flow, reduce the amount of labor spent machining parts and will allow us to in-source items that we would have otherwise purchased from vendors.
New tooling, specifically tooling related to our rotational molding machines, is another example of how we are investing in our business to support our local-for-local initiatives.
This lets us manufacture key components at the point of assembly, meaning, we can avoid situations where we manufacture in one location before shipping to a second location for final assembly.
These actions help avoid unnecessary shipping delays, freight costs, added time to manufacture and inventory carrying costs.
While our teams are taking every opportunity to find creative solutions to address the current supply chain environment, each day brings new challenges in terms of parts availability.
Right now, the lack of availability of hydraulic pumps, chips and other electronic components, which are critical parts within our machines, are main drivers of our increased backlog and are directly affecting our ability to deliver on our full year potential.
However, we will continue to control everything we can control and work diligently to capitalize on the strong demand environment.
An important component of our enterprise strategy is a long-term move toward platform design.
In the current environment, our engineering teams are taking a balanced approach to this initiative as they weigh the long-term benefits of platform design with the near-term need to adjust our designs to allow for available parts and to increase our sourcing flexibility.
Of course, our commitment to quality and safety and meeting the needs of our customers will not waiver.
Regarding labor shortage, specifically in manufacturing, we are staying competitive with wages and are making every effort to attract new talent by providing a safe, rewarding and fulfilling work environment.
We are also supplementing and strengthening our talent acquisition teams by partnering with third-party vendors to assist with our employment outreach through targeted marketing campaigns and professionally staged hiring events.
We are encouraged by these actions which are having a positive effect on our recruiting and helping to mitigate the ongoing labor challenges.
As Fay will discuss, while our revised full year guidance reflects what continues to be a challenging operating environment, our team remains committed to meeting the needs of our customers and executing against our enterprise strategy to deliver on our long-term financial commitments.
In particular, we continue to innovate for profitable growth, which is the third pillar of our enterprise strategy.
Over the past year, we've announced the introduction of new products to help address the evolving needs of our customers.
Earlier this year, we introduced new mid-tier products, which leverage our IPC product portfolio, to meet the needs of a broader segment of customers by offering a wider range of performance and price points.
Our mid-tier products have been well received by our customers and distributors.
While they leverage the same IPC platform, these Tennant-branded products benefit from the broader customer experience associated with the Tennant brand, including the full ecosystem of application expertise, technological innovations and best-in-class sales and service support.
During the past year, we've also introduced two key new products to our AMR portfolio, including the T380AMR and the T16AMR. Together with the T7AMR, these products have created a comprehensive robotic portfolio to meet all of our customers' needs.
With the addition of these new products, we have been able to strategically enter new verticals outside of just retail, including manufacturing, logistics and warehousing and education, among others.
Our AMR portfolio continues to be well received by an expanding number of customers, and we look forward to updating you on a number of other AMR innovations as they materialize.
The one strategic pillar I haven't yet touched on is winning where we have a competitive advantage.
For example, we recently launched a value realization exercise in Australia building on our successful North American execution back in 2019 where we assessed all of our strategic accounts and distributor partners.
In Australia, this allowed us to realign over 40% of our strategic account customers and 80% of our distributor partnerships, ensuring that we have an optimized channel structure in place to serve this highly competitive market.
By adjusting our customer segmentation appropriately, we can better adjust lead times, pricing and sales support across our customer base.
In doing so, we are aligning the customer experience with our profitability goals.
Moreover, we are relentlessly focused on providing our customers with high quality products and exceptional service as we execute on our enterprise strategy.
With that goal in mind, we will continue to take decisive and appropriate actions to maintain our customer experience, while remaining focused on our business objectives.
For the third quarter of 2021, Tennant reported net sales of $272 million, an increase of 3.9% over the prior year, which included a favorable foreign currency effect of 1.2% and a divestiture impact of negative 2% related to the sale of our Coatings business in the first quarter of 2021.
Organic sales, which exclude the impact of these currency effects and divestitures, increased 4.7%.
As Dave mentioned, our revenue results were tempered by the continued global supply chain disruptions and labor constraints, with North America being the most affected.
Tennant groups its sales into three geographies.
The Americas, which include all of North America and Latin America.
EMEA, which covers Europe, the Middle East and Africa.
And Asia Pacific, which includes China, Japan, Australia and other Asian market.
In the third quarter, sales in the Americas decreased 0.6% year-over-year, which included a negative divestiture impact of 3.1%, organic growth of 2% and a favorable foreign exchange effect of 0.5%.
Strong customer demand in Brazil and Mexico drove a year-over-year increase in sales in Latin America.
North America delivered modest organic growth as compared to the prior year, due to the previously mentioned supply chain and labor challenges as well as the lapping of the significant AMR order in the prior year.
Additionally, the current year period benefited from an increase in our service, parts and consumables businesses.
Sales in EMEA increased 16.1% or 14% organically, including a favorable foreign exchange effect of 2.1%.
The results which were impacted by global supply chain challenges reflected growth across all countries and product categories in the region as demand returned to pre-pandemic levels.
Sales in APAC decreased 0.4% or 2.9% on an organic basis and included a positive foreign exchange effect of 2.7% and a negative revenue impact of 0.2% related to the sale of the Coatings business.
The sales decline was partially attributed to pandemic-related lockdowns in some regional markets during the third quarter of 2021.
Supply chain disruptions and labor constraints impacting North America plants that supply APAC also limited our ability to meet orders across the region with the largest impact experienced in China and Japan.
Even so, the region experienced strong results for parts and consumables and service with strength in the Australian market across all product categories.
Reported and adjusted gross margin in the third quarter were both 40.1% compared to a reported gross margin of 39.6% and adjusted gross margin of 39.8% in this year ago period.
Although the comparison to the prior year was favorable, the year ago period was unfavorably impacted by certain strategic investments and pandemic-related productivity challenges.
As we highlighted during our last conference call, our third quarter adjusted gross margin was lower than the adjusted gross margin in the first half of 2021.
This decrease was primarily due to increased material and freight costs and productivity challenges caused by parts availability.
As for expenses, during the third quarter, our adjusted S&A expenses were 28.3% of net sales compared to 29.3% in the year ago period.
The year-over-year improvement in leverage was a direct result of the cost saving actions as well as the adjustment of management incentives in Q3 of 2021 to better reflect current expectations.
Net income in the third quarter was $21.5 million or $1.14 per diluted share compared to $11.7 million or $0.63 per diluted share in the year ago period.
Adjusted diluted EPS, which exclude non-operational items and amortization expense was $1.33 per share compared to $0.90 per share in the year ago period.
The increase year-over-year was primarily driven by lower interest expense and increased business performance.
Adjusted EBITDA in the third quarter increased to $36 million or 13.2% of sales compared to $32.6 million or 12.4% of sales in Q3 of last year.
The year-over-year improvement was driven primarily by increased revenues based on strong demand as we continue to lap the pandemic-related slowdown of 2020 as well as improved gross margins and an adjustment of management incentives previously mentioned.
As for our tax rate, in the third quarter, Tennant had an adjusted effective tax rate excluding non-recurring expenses of 3.8% compared to 11.3% for the third quarter of 2020.
The decrease in the effective tax rate was driven primarily by a tax benefit resulting from an election to step-up the tax basis of certain assets in Italy.
Turning to cash flow and balance sheet items.
Our long-term capital allocation strategy is to first fund operations and investment in growth, appropriately managed leverage, pursue strategic and accretive M&A and then to return excess free cash flow over time to shareholders through dividends and share repurchases.
We ended the quarter with $140.6 million in cash and cash equivalents and our net leverage of 0.93 times adjusted EBITDA is lower than our stated goal of 1.5 to 2.5 times.
Cash flow from operations was strong with $25.1 million generated in the third quarter and $62.9 million generated on a year-to-date basis.
Additionally, capex is approximately $12 million for the first nine months of the year.
Our strong free cash flow generation allowed us to return capital to shareholders through the following actions.
First, and as previously announced, Tennant's Board of Directors has authorized a 9% increase in the company's quarterly cash dividend to $0.25 per share.
The increased dividend is payable on December 15, 2021 to shareholders of record at the close of business on November 30, 2021, marking the 50th consecutive year that the company has increased its annual cash dividend.
Secondly, during the third quarter, Tennant repurchased approximately 102,000 shares of its common stock for $7.5 million under its existing share repurchase program.
The increase in the dividend and our share repurchase activities are aligned with our long-term capital allocation priorities and display continued confidence in our ongoing business performance and future cash flow generation.
Lastly, turning to guidance.
As included in today's earnings announcement, Tennant adjust its full year guidance for 2021 as follows.
Net sales of $1.09 billion to $1.1 billion, reflecting organic sales growth of 9% to 10%.
Full year reported GAAP earnings in the range of $3.50 to $3.70 per diluted share.
Adjusted earnings per share of $4.20 to $4.40 per diluted share.
Adjusted EBITDA of $137 million to $142 million.
Capital expenditures of approximately $20 million.
And an adjusted effective tax rate of approximately 15%.
The challenges we're facing with global supply chain and labor shortages are not unique to Tennant and are likely to remain for the foreseeable future.
These challenges did have a direct impact on our Q3 results and our ability to meet our full potential in 2021.
However, we are encouraged by the strong response to our innovative suite of products and the market recovery that is now at pre-pandemic levels of demand.
Our continued execution of our enterprise strategy has enabled us to better navigate to continued macro challenges facing the overall economy.
But more importantly, the strategic actions we've taken over the past couple of years will ultimately drive long-term growth and profitability and enhance shareholder value.
We will now open the call to questions.
 Assistant:

Chosen response:
q3 adjusted earnings per share $1.33.
q3 earnings per share $1.14.
sees fy gaap earnings per share $3.50 to $3.70.
q3 sales rose 4.7 percent to $272 million.


Prompt:
Human: All of these materials can be found on our website at travelers.com under the Investors section.
Speaking today will be Alan Schnitzer, Chairman and CEO; Dan Frey, Chief Financial Officer; and our three segment Presidents; Greg Toczydlowskias of Business Insurance; Jeff Klenk of Bond & Specialty Insurance; and Michael Klein of Personal Insurance.
They will discuss the financial results of our business and the current market environment.
Also in our remarks or responses to questions, we may mention some non-GAAP financial measures.
We're pleased to report strong top and bottom-line results for the quarter and the first nine months of the year, including very strong underlying underwriting profitability and healthy top line growth.
Core income year-to-date of $2.2 billion is about $800 million higher year-over-year, generating core return on equity of 11.6%.
Core income for the quarter was $655 million or $2.60 per diluted share, generating core return on equity of 10.1% despite a high level of catastrophe losses.
Our cat losses were well below our market share and well above the prior-year quarter and the tenure average for the quarter.
Underlying underwriting income of $632 million pre-tax was 6% higher than in the prior-year quarter, driven by record net earned premiums of $7.8 billion and a very strong underlying combined ratio of 91.4%.
We're particularly pleased with the continued strong underlying fundamentals in our commercial businesses.
The underlying combined ratio improved by almost 4 points in Business Insurance and more than 5 points in Bond & Specialty Insurance.
As you'll hear in a few minutes from Michael, underlying results in Personal Insurance were impacted by auto frequency returning to pre-pandemic levels and elevated severity in both auto and property due to higher costs for labor, materials.
Our consolidated results demonstrate the value of having a diversified group of businesses.
Turning to investments, our high quality investment portfolio generated net investment income of $645 million after-tax, reflecting reliable performance in our fixed income portfolio and very strong returns in our non-fixed income portfolio.
These results together with our strong balance sheet and cash flow enable us to grow adjusted book value per share by 10% over the past year after making important investments for the future and returning significant excess capital to our shareholders.
During the quarter, we returned $821 million of excess capital to shareholders, including $601 million of share repurchases.
Turning to the top line, net-written premiums grew 7% to a record $8.3 billion.
Each of our three segments again contributed meaningfully to the top line growth.
In Business Insurance, net-written premiums grew by 5% with renewal premium change of 9.9%, up more than 200 basis points year-over-year, a near all-time high.
Renewal premium change was driven by continued strong renewal rate change and higher exposure growth.
Importantly, at the same time, retention was also higher.
Our ability to continue to drive price change at historical highs while increasing retention reflects excellent marketplace execution and the stability of the pricing environment.
In Bond & Specialty Insurance, net-written premiums increased by 19%, driven by record renewal premium change of 13.6% in our Management Liability business and continued strong retention.
We're also pleased to report strong production in our Surety business.
In our Commercial businesses, written pricing continues to outpace estimated loss trend, which will continue to benefit margins as it earns in.
Given social and other inflation, the frequency and severity of weather-related loss activity and the low interest rate environment, we expect the pricing environment to remain strong.
In Personal Insurance, net-written premiums increased by 7%.
Policies in force in both auto and homeowners were at record levels, driven by continued strong retention and growth in new business.
Before I wrap up on results, I'd like to spend a minute discussing how our leading data and analytics and risk expertise contributed to our relatively favorable loss experience with Hurricane Ida.
As I shared in our first quarter earnings call, our share of the industry's property cat losses over the past five years have been meaningfully lower than our corresponding market share, and while there is always the potential for us to have outsized exposure to an event, it was no accident that we again outperformed in Hurricane Ida.
Our medium underwriting expertise supported by cutting edge data analytics are key to an effective assessment of risk and reward.
For us third-party models are starting point for our more advanced proprietary cat modeling.
At the portfolio level, the insights from our models warned us away from the coast where Ida made landfall, given the impediments to achieving an appropriate risk-adjusted return.
In the other states among Ida's path, we effectively managed risk selection, pricing and other terms and conditions, sophisticated data and analytics at the fingertips of our frontline underwriters.
These include robust flood risk scoring, location intelligence down to the parcel level, Hill dashboards and output from our risk control engineers.
Within Personal Insurance, we continue to see the benefits from our highly segmented Quantum Home 2.0 product, which has now rolled out in more than 40 states.
In the Northeast, extreme rainfall from Ida resulted in significant claim activity for the industry, including from water and drainage back up, which is a coverage we provide in our QH 2.0 product.
The model underneath the product leverages data and analytics to underwrite a price tag coverage on a very granular basis.
In addition to underwriting, data and analytics are increasingly informing our claims handling strategies.
For example, our AI-assisted claim damage detection model was a key part of our Ida claim response.
This model uses AI and high-resolution aerial imagery to detect the extent of damage to individual properties as soon as a day after an event.
Within two days of impact, we were collecting and analyzing aerial imagery of customer properties along Ida's path as it moved across 20 states.
This enabled us to remotely identify which of our customers properties had sustained exterior damage and effectively organize our claim response.
In some cases, we can use this technology to adjust and pay total losses before the customer has even been able to return to their home.
We also utilized other virtual capabilities in our Ida response, such as image share and live video capture, on a majority of claims with interior damage.
These leading edge capabilities, enhanced the claim experience for our customers by cutting significant time out of the claim process, expediting an accurate loss assessment and in many cases, eliminating the need for physical inspection.
Again, with Ida, we successfully closed 90% of all homeowners plans within 30 days.
All of this also results in a more efficient outcome for our shareholders.
As strategic as the data and analytics are, maybe even more important is the culture that brings it all together.
Our collaborative approach to developing a holistic, 360-degree view of risk, incorporating underwriting, claims, actuarial risk-control, legal and regulatory inputs is an important differentiating factor in effectively managing risk and reward.
That culture is decades in the making and very hard to replicate.
As I shared last quarter, Jeff is a 22-year veteran at Travelers most recently as a member of Tom Kunkel leadership team and head of our Management Liability business.
Jeff succeeded Tom, following his retirement last month.
We're fortunate to have Jeff in the role and you will hear from him in a few minutes.
To sum it up, we're pleased with our results for the quarter and year-to-date.
Our significant and hard to replicate competitive advantages position us very well and continued to deliver meaningful shareholder value over time.
Core income for the third quarter was $655 million compared to $798 million in the prior-year quarter.
For the quarter, core return on equity was 10.1% and on a year-to-date basis, core ROE was 11.6%.
The decline in core income was driven by prior-year reserve development and catastrophe losses.
Recall that last year's PYD benefited by approximately $400 million of subrogation recoveries from PG&E.
Those unfavorable year-over-year comparisons were partially offset by increased investment income and a higher level of underlying underwriting income.
Underlying underwriting income increased 6% to $632 million pre-tax, reflecting a higher level of earned premium in all three segments and a strong underlying combined ratio of 91.4%.
Improvements in the underlying combined ratio in both Business Insurance and Bond & Specialty were offset by an increase in the underlying combined ratio in Personal Insurance.
Business Insurance and Bond & Specialty results both reflected the benefit of our pricing efforts, as earned price continues to exceed loss trend.
We expected a higher underlying combined ratio in Personal Insurance given that last year's quarter benefited from unusually low auto losses related to the pandemic.
As Alan mentioned, the underlying combined ratio in PI was further impacted by higher severity in both the auto and homeowners products.
Greg, Jeff and Michael will provide more detail on each segment results in a few minutes.
On a consolidated basis, the underlying loss ratio for the quarter improved slightly to 62% compared with last year's 62.2%.
The expense ratio of 29.4% was in line with the prior-year quarter and in line with our expectations.
We've improved the expense ratio by more than 2 points from where we were five years ago.
Having added roughly $7 billion to our annual net-written premiums over that period, while maintaining a focus on productivity and efficiency, all while adding significantly to the level of strategic investment we're making to ensure our future success.
Before turning to catastrophe losses, I wanted to point out that within our underlying combined ratio, non-cat weather was higher than we would have assumed for the quarter, although lower than the unusually high levels we experienced in last year's third quarter.
Our third quarter cat losses were $501 million pre-tax compared to $397 million a year ago.
Remember that in last year's third quarter, we had a full recovery under the property aggregate catastrophe XOL treaty.
In this year's third quarter, we recognized a partial recovery of $95 million from the treaty, $83 million benefiting the cat line with $43 million in Business Insurance and $39 million in Personal Insurance and $12 million benefiting our underlying results with $3 million in Business Insurance and $9 million in Personal Insurance.
That leaves us with $255 million of potential recovery in the fourth quarter, depending on the level of qualifying losses we actually experienced.
In terms of the level of cat losses relative to our assumptions, third quarter cats were elevated compared to what we would have assumed for a typical third quarter.
Although our losses from Hurricane Ida are well below our relative market share, the sheer size of Ida on top of the other cat losses in the quarter resulted in overall cat losses that were higher than our assumption.
Turning to prior-year reserve development.
In Personal Insurance, $30 million of pre-tax net favorable PYD resulted from better-than-expected experience from recent years in the property line.
In Bond & Specialty Insurance, $22 million of pre-tax net favorable PYD was driven by favorable loss experience in the surety product line for recent accident years.
In Business Insurance, net unfavorable PYD was $108 million pre-tax.
Our annual asbestos review resulted in a charge of $225 million as the level of claim activity did not decline as much as we had assumed in our previous estimate.
Excluding asbestos charge, Business Insurance had net favorable prior-year reserve development of $117 million, driven primarily by better-than-expected loss experience in workers' comp across multiple accident years.
Net investment income improved to $645 million after-tax this quarter.
Our non-fixed income portfolio delivered another strong results contributing $224 million after-tax.
Consistent with our expectations, fixed income returns were down slightly from the prior-year quarter as the benefit from higher levels of invested assets was more than offset by a decline in yields.
For the fourth quarter of 2021, we expect NII from the fixed income portfolio, including earnings from short-term securities of between $425 million and $435 million after-tax.
For 2022, we expect that figure to be between $420 million and $430 million per quarter.
Turning to capital management.
Operating cash flow for the quarter of $2.5 billion was an all-time record.
All our capital ratios were at or better than target levels and we ended the quarter with holding company liquidity of approximately $2 billion.
The market value of the bonds in our fixed income portfolio declined as U.S. treasury yields increased and credit spreads widened during the quarter, and accordingly our after-tax net unrealized investment gain decreased from $3.2 billion as of June 30 to $2.7 billion at September 30.
Adjusted book value per share, which excludes net unrealized investment gains and losses was $104.77 at quarter-end, up 5% since year-end and up 10% since September 30 last year.
We returned $821 million of capital to our shareholders during the third quarter with $220 million of dividends and $601 million in share repurchases.
Overall a very good quarter performance with healthy top line growth, strong and improved underlying margins in our commercial businesses, excellent cash flows and a terrifically strong balance sheet.
Business Insurance had another great quarter with strong financial results and terrific execution in the marketplace.
Segment income was $558 million for the quarter, up more than 50% from the prior-year quarter.
The improved year-over-year result was driven by higher underlying underwriting income, prior-year reserve development and higher net investment income, partially offset by higher catastrophe losses.
We're once again particularly pleased with the underlying combined ratio of 90.2%, which improved by 3.8 points from the third quarter of 2020, primarily attributable to three things.
First, about 2 points of the improvement resulted from earned pricing that continued to exceed loss cost trends; the other nearly 2 points resulted from a combination of a favorable impact associated with the pandemic and a lower level of property losses.
Turning to the top line, net-written premiums were up 5%, benefiting from strong renewal rate and exposure levels as well as high retention.
As for domestic production, renewal premium change was once again historically high at 9.9%, while retention increased to an exceptional 85%.
The 9.9% renewal premium change was up more than 2 points from the third quarter of last year with strong renewal rate change of 6.3% and continued improvement in our customers' exposure growth.
In addition to our granular price execution, we've also focused on careful management of deductibles, attachment points, limits, sub-limits and exclusions which can also contribute to an increase in the price per unit of risk.
New business was down from the prior-year quarter as we continue to be thoughtful about balancing risk and reward for new business in the marketplace.
As for the individual businesses, in select, renewal premium change was a strong 9.7%, while retention improved from recent periods to 82%.
Underneath RPC renewal rate change was 4.1%, up well over a point from the third quarter of 2020.
We're also encouraged with the improving exposure which was up about 3 points as the economy continues to reopen.
New business was up a bit from the prior-year, driven by the continued success of our new BOP 2.0 product, which is now live in 39 states.
In middle-market, renewal premium change of 9.5% and retention of 88% were both historically high.
Renewal rate change of 6.2% remained strong.
As always, we remain disciplined around risk selection and underwriting.
To sum up, Business Insurance had another terrific quarter.
We're pleased with our execution in further improving the underlying margins in the BOP and we continue to invest in the business for long-term profitable growth.
I'm very pleased to be here.
We've built an industry-leading surety and management liability franchise and we look forward to continuing to perform, innovate and transform to profitably grow these businesses into the future.
Turning to the results, Bond & Specialty delivered excellent returns and growth in the quarter.
Segment income was $174 million, up about 50% compared to the prior-year quarter, driven by the impact of higher net earned premium, a significantly improved underlying underwriting margin and favorable prior-year reserve development.
The underlying combined ratio of 83.4% improved by 5.5 points from the prior-year quarter, reflecting lower pandemic-related loss activity, earned pricing that exceeded loss cost trends and a lower expense ratio.
Turning to the top line, net-written premiums grew an exceptional 19% in the quarter with strong contributions from all our businesses.
In domestic management liability, renewal premium change was a record 13.6%, driven by record renewal rate change.
Retention remained strong at 86% consistent with recent quarters, but down a few points year-over-year as we continue to non-renew cyber policies for accounts that don't meet our updated minimum requirements for cyber hygiene.
Notably, research indicates that implementing affordable cyber risk mitigation controls such as multi-factor authentication should prevent the vast majority of rents [indecipherable] tax.
Domestic surety also posted strong growth relative to the pandemic-impacted prior-year quarter.
In addition, our international business has again posted excellent growth including strong management liability retention and rate.
So both top and bottom-line results for Bond & Specialty were terrific this quarter, demonstrating our thoughtful approach and strong execution across our businesses.
In Personal Insurance, bottom-line results were impacted by weather, our return to pre-pandemic claim frequency in auto and higher loss severity impacting both auto and home results.
Segment income declined by $394 million than the prior-year quarter.
$262 million of that decline is attributable to lower favorable prior-year reserve development as the prior-year quarter benefited from the PG&E settlement Dan referenced.
The remaining unfavorable variance was primarily driven by lower underlying underwriting results.
Our underlying combined ratio increased by 6.5 points to 95.2%.
We were pleased to see our top line momentum continue in the quarter, with net-written premiums up 7%.
Automobile underwriting results reflected higher loss levels for the quarter.
The combined ratio was 100% and included 3.4 points of catastrophe losses, mostly from Hurricane Ida.
The underlying combined ratio was 97%, up approximately 15 points from the prior-year quarter which reflected unusually low loss activity due to the pandemic.
The underlying combined ratio increased mainly due to claim frequency effectively returning to pre-pandemic levels in line with the trend we referenced in our prior quarter call.
To a lesser degree higher loss severity impacted the combined ratio as well as the vehicle replacement and repair costs remained at elevated levels.
We believe these profitability challenges are environmental and in response we are executing on our plans to file rate increases in about 40 states over the next three quarters.
As we indicated last quarter, it will take time for future rate actions to earn into results but we do expect to have higher rates in market in several states by year-end.
In Homeowners and other, the third quarter combined ratio increased by 16 points from the prior-year quarter to 109.3%, driven by a 24 point reduction in net favorable prior-year reserve development primarily related to the PG&E recovery from last year.
The combined ratio included 17.6 points of catastrophe losses, mostly from Hurricane Ida.
Homeowner's catastrophe losses were 4.7 points below a very active prior-year quarter.
The underlying combined ratio was 93.3%, an improvement of 3.5 points over the prior-year quarter, which experienced a very high level of loss activities.
That said, the underlying combined ratio was above our expectations, reflecting elevated non-catastrophe weather and non-weather loss activity, both of which included higher severity related to a combination of labor and materials price increases.
Again, we believe these trends are environmental and we continue to seek price increases in response.
Before I shift to discussing production, I'll remind you that looking ahead to the fourth quarter, there tends to be a good amount of seasonality in our combined ratio results by line of business, with the fourth quarter auto losses typically higher and fourth quarter homeowners losses typically lower than their annual average levels.
Turning to production, we were very pleased to deliver another strong quarter in both auto and home.
Automobile policies in force grew 5% to a record level, driven by strong retention at 85% and continued growth in new business which increased by 8%.
Renewal premium change was essentially flat reflecting the continued impact of the rate increases we filed in response to the pandemic.
Domestic homeowners and other delivered another excellent quarter with policies in force up 7% also to a record level, driven by retention of 85% and new business growth of 5%.
Renewal premium change increased to 8.8%.
In the quarter, we continued to deliver solutions that meet customers where they are, give them what they need and serve them how they want.
A couple of highlights from the quarter include: our new digital self-inspection process for property customers which improves their onboarding experience and provides valuable information to our underwriters; and IntelliDrive, our proprietary Auto Telematics offering which now had distracted driving as a rating variable in 40 U.S. markets in Ontario, Canada providing valuable feedback to drivers and continuing to advance our sophisticated pricing segmentation in automobile.
We will continue to invest in new capabilities like these for our customers and distribution partners.
Despite a challenging third quarter on the bottom line, we remain pleased with our overall performance and we are well-positioned to profitably grow our business over time.
 Assistant:

Chosen response:
compname reports q3 core earnings per share $2.60.
oct 19 (reuters) - :travelers companies inc - qtrly core earnings per share $2.60; qtrly earnings per share $2.62.
travelers companies inc - qtrly total revenue $8.81 billion, up 6%.
travelers companies inc - qtrly net written premiums $8.32 billion, up 7%.
travelers companies inc - qtrly catastrophe losses of $501 million pre-tax versus $397 million pre-tax.
travelers companies inc - qtrly net investment income of $771 million pre-tax ($645 million after-tax), up 15%.
travelers companies inc - qtrly catastrophe losses primarily resulted from hurricane ida and severe storms in several regions of u.s..
travelers companies inc - quarter-end book value per share of $115.74, up 5% from september 30, 2020.


Prompt:
Human: All of these materials can be found on our website at travelers.com under the Investors section.
Speaking today will be Alan Schnitzer, Chairman and CEO; Dan Frey, Chief Financial Officer; and our three segment presidents, Greg Toczydlowski of Business Insurance, Tom Kunkel of Bond and Specialty Insurance and Michael Klein of Personal Insurance.
They will discuss the financial results of our business and the current market environment.
Also in our remarks or responses to questions, we may mention some non-GAAP financial measures.
Before I address our fourth quarter and full year results, a quick comment on current affairs.
Yesterday, we witnessed the most American of events.
The peaceful transfer of power from one democratically elected administration to the next.
It's not a political statement, but a patriotic one to say that we want to see this next administration succeed.
We have significant challenges to overcome.
A pandemic threatening the health and safety of our loved ones and neighbors.
A distressed economy imperilling the lives and livelihoods of millions.
And a deeply divided society, which undermines our collective sense of security and well-being.
Let's hope yesterday marks the beginning of our political leaders on both sides of the aisle, taking a constructive approach to addressing these challenges.
And with that, I'll turn to results.
I'm pleased to report a very strong finish to the year with fourth quarter core income of $1.3 billion or $4.91 per diluted share and core return on equity of 20.5%, each up meaningfully from the prior year quarter.
We're also pleased to report full year core income of $2.7 billion, generating core return on equity of 11.3%, a substantial margin of the risk-free rate and our cost of equity.
Our ability to deliver these results in the face of an historic pandemic, a record-high number of PCS catastrophe events and record-low interest rates is a testament to the strength of our franchise.
More specifically, to our talented and committed workforce, the value of our hard to replicate competitive advantages and our expertise in balancing risk and reward to achieve industry-leading returns over time.
The principal driver of the higher level of core income for the quarter was very strong underlying underwriting income, resulting from record net earned premium of $7.5 billion and an underlying combined ratio that improved 3.4 points to an excellent 88.7%.
We're pleased with the underwriting results in all three segments.
We once again recorded a sub-30% consolidated expense ratio for the quarter and the full year, demonstrating that our strategic investments in improving productivity and efficiency continue to pay off.
This quarter, our high quality investment portfolio performed well, generating net investment income of $572 million after-tax as the non-fixed income portfolio continued to recover from the pandemic-related impacts earlier in the year.
Our operating results together with our strong balance sheet enabled us to grow adjusted book value per share by 7% during the year after returning $1.5 billion of excess capital to shareholders, including $672 million of share repurchases, which we resumed in the fourth quarter.
Notwithstanding the challenges in the economy, we continued to successfully execute on our marketplace strategies to generate growth in top-line.
Net written premiums in the quarter grew by 3%, driven by strong renewal rate change broadly across the book and continued strong retention in all three segments.
Given the headwinds facing the industry, we expect the favorable pricing environment to continue for some time.
Business Insurance in our core Middle Market business, renewal rate change was a record 9.1%, up 4.5 points over the prior year and about a point sequentially, while retention remained strong.
Segmentation and pricing is key in this business.
And to that end, the quality of the execution underneath the headline production numbers was excellent.
In Bond & Specialty Insurance, net written premiums increased by 12% as renewal premium change in our domestic management liability business achieved a record 10.9%, driven by record renewal rate change, while retention remained strong.
In Personal Insurance, net written premiums increased by 7%, driven by strong renewal premium change in our Agency Homeowners business and strong retention and new business in both Agency Auto and Agency Homeowners.
Fourth quarter production contributed to full year record net written premiums of almost $30 billion, up 2% compared to last year.
Adjusting for the premium refund to be offered to our Personal Insurance auto customers, net written premiums were up 3%, a strong top-line result in the context of this year's difficult economic environment.
I've shared before our belief that any commitment to delivering industry-leading return on equity over time requires a strategy to grow over time.
To that end, a few years ago, we laid out a strategy to achieve profitable growth in the context of the forces of change we have previously identified is impacting the industry.
As you can see on the slide, despite the challenging economic and operating environment, 2020 was another successful year of the execution of that strategy.
Since 2016, we have grown net written premiums and a 4.5% compound annual rate, substantially outpacing both GDP growth over the same period and rate over the prior years in the decade.
We accomplished that while maintaining a stable underlying underwriting margin.
In other words, we haven't grown by underpricing the product or changing our risk profile.
The growth has come organically from customer segments, products, geographies and producers that we know well.
Over that same period through our ongoing and relentless focus on optimizing productivity and efficiency, we've also improved our expense ratio by about two points compared to the run rate from earlier in the decade.
As you can also see on the slide, the result of all that is significantly higher underlying underwriting income, meaningfully higher cash flow from operations and double-digit growth in invested assets.
Those results have contributed to our ultimate objective of creating shareholder value and industry-leading return on equity over time.
Our core return on equity has increased in each of the last three years and averaged 11% over that period.
And that 11% is after bearing the impacts of significant cat and non-cat weather activity and meaningful increase in social inflation, historically low interest rates and the global pandemic.
In short, our performance this year and over recent years is the result of a sound strategy and the successful achievement of our strategic objectives.
Notwithstanding concerns for their own safety and responsibilities for taking care of loved ones and educating their children, they never wavered from our purpose of taking care of the people with privilege to serve or our mission of creating shareholder value.
I couldn't be more proud of this team.
From the scientists to the regulators to those who volunteer to participate in trials, it's a remarkable feat.
The side of those vaccines rolling off the line inspires optimism for the coming year and the sheer human will and ingenuity behind the effort to inspire hope for the future.
Core income for the fourth quarter was $1.262 billion, up from $867 million in the prior year quarter and core ROE was 20.5%, up from 14.8%.
Improvement in both measures was the result of very strong underlying underwriting results.
Our fourth quarter results include $29 million of pre-tax cat losses compared to $85 million of pre-tax cat losses in last year's fourth quarter.
Recall that last year's fourth quarter cat losses included a $101 million benefit from recoveries under the underlying Aggregate Cat Treaty, whereas in 2020, we exhausted the Cat Treaty in the third quarter.
So there were no recoveries under the treaty in this year's fourth quarter.
This quarter's cat results include about $40 million of favorable development in our loss estimates for events that occurred earlier in the year.
PYD in the current quarter, for which I'll provide more details shortly, was net favorable $180 million pre-tax.
The underlying combined ratio of 88.7%, which excludes the impacts of cats and PYD, improved by 3.4 points from the prior year quarter.
Our pre-tax underlying underwriting gain of $804 million increased by nearly 50% over the prior year quarter, reflecting the benefit of higher levels of earned premium and higher margins, driven by earned pricing that exceeded loss cost trend and continued favorability in personal auto loss experience.
For the quarter, losses directly related to COVID-19, totaled a modest $31 million pre-tax, split about evenly between Business Insurance and Bond & Specialty Insurance.
More than offsetting those losses were lower levels of auto claims in both Personal Insurance and Business Insurance.
The net impact of the COVID environment on the consolidated underlying combined ratio amounted to a benefit of about 2.5 points, mostly in Personal Insurance.
We continue to take a cautious approach in estimating the net impact of COVID-related losses given the ongoing uncertainty in this environment.
As has been the case throughout the year, the majority of direct COVID losses that we've booked through year end remains in IBNR.
Looking at the full year net impact of COVID costs and benefits, including the impact of premium refunds to policyholders, our consolidated underlying combined ratio benefited by about a point.
The fourth quarter expense ratio of 29.4% brings the full year expense ratio to 29.9%.
While throughout the year we continued to make the investments necessary to fuel our continued success, our ongoing focus on productivity and efficiency once again resulted in a sub-30% expense ratio despite the downward pressure on earned premiums from the impact of the soft economy on insured exposures and the premium refunds we issued to our personal auto customers.
We continue to be comfortable with the consolidated expense ratio of around 30%.
After-tax net investment income improved by 9% from the prior year quarter to $572 million.
A strong returns in the fixed income portfolio and a higher level of invested assets were partially offset by the expected decline in fixed income yields.
Looking forward to 2021, we expect that after-tax fixed income NII, including earnings from short-term securities, will be between $420 million and $430 million per quarter as we project that the benefit of higher average levels of invested assets will be more than offset by a lower average yield on the portfolio in the lower interest rate environment.
Net favorable prior year reserve development occurred in all three segments and totaled $180 million pre-tax in the fourth quarter.
In Business Insurance, net favorable PYD of $124 million was driven by better than expected loss experience in workers' comp, primarily from accident years 2017 and prior, partially offset by an increase to reserves related to very old years in our run-off book.
In Bond & Specialty, net favorable PYD of $32 million resulted primarily from better than expected loss development in the surety book.
And in Personal Insurance, net favorable PYD of $24 million was driven by the automobile line.
With our combined 2020 Schedule P is filed earlier in the second quarter, the line of business analysis will provide more detail on the loss trends we've noted in our commentary throughout the year with favorability in workers' comp, commercial property and the personal lines coverages and some strengthening in the commercial liability lines, much of which was in very old accident years relating to our run-off book.
Our long-standing Corporate Cat XOL Treaty renewed on terms in line with the expiring treaty and continues to provide coverage for both single cat events and the aggregation of losses from multiple cat events.
Regarding the Underlying Property Aggregate Catastrophe XOL Treaty we first purchased for 2019, we have renewed the treaty again for 2021.
While the treaty will continue to address qualifying PCS-designated events in North America, for which we incurred losses of $5 million or more, the 2021 renewal includes a $5 million deductible per event.
In prior years, PCS-designated events had cost us more than $5 million accounted toward the treaty from $1 [Phonetic].
The treaty provides aggregate coverage of $350 million, part of $500 million of losses, above our aggregate retention of $1.9 billion.
The aggregate retention for 2021 increased from 2020's $1.55 billion, largely reflecting recent years' experience and anticipated growth in our property book.
Hurricane and earthquake events once again have $250 million per occurrence cap.
And for 2021, wildfires are also capped at $250 million per event.
Incorporating our assumptions about cat and non-cat weather for 2021, we expect the full year impact of the treaty on our underlying combined ratio to be roughly half a point.
And we anticipate only a minimal impact on the total combined ratio.
Both of those impacts are consistent with the assumptions we had in each of the past two years.
Turning to capital management.
Operating cash flows for the quarter of $1.9 billion were again very strong.
All our capital ratios were at or better than target levels.
And we ended the quarter with holding company liquidity of approximately $1.7 billion.
For the full year, operating cash flow exceeded $6 billion for the first time ever and reflected the benefit of continued increases in premium volume subrogation recoveries from PG&E related to the 2017 and 2018 California wildfires and lower overall claim payouts as court room and other settlement activity slowed throughout the year due to COVID-related shutdowns.
Higher levels of cash flow give us the flexibility to continue to make important investments in our business, return excess capital to our shareholders and grow our investment portfolio.
Interest yields decreased modestly as credit spreads tightened during the fourth quarter.
And accordingly, our net unrealized investment gains increased from $3.8 billion after-tax as of September 30 to $4.1 billion after-tax at year end.
Adjusted book value per share, which excludes unrealized investment gains and losses was $99.54 at year end, a 7% increase from a year ago.
We returned $419 million of capital to our shareholders this quarter, comprising dividends of $218 million and share repurchases of $201 million.
For the year, we returned $1.5 billion of capital to shareholders through dividends and share repurchases.
As we entered 2021, we again thought it would be helpful to highlight the seasonality of our cat losses over the prior decades.
As shown in the data, the second quarter has regularly and noticeably been our largest cat quarter.
Cat losses in the second quarter have been about twice as much as any other quarter on average.
And the second quarter has been our largest cat quarter in seven of the past 10 years.
To wrap it up, we are very pleased with the quarter and full year results, especially given the challenging circumstances.
For the fourth quarter, Business Insurance produced $713 million of segment income, an increase of almost 60% over the fourth quarter of 2019.
Higher net favorable prior year reserve development, underlying underwriting income and net investment income as well as lower cat losses, all contributed to the favorable year-over-year increase.
We're pleased with the underlying combined ratio of 93.6%, which improved by 2.8 points from the prior year quarter.
We benefited again from earned pricing that exceeded loss trend with an impact this quarter of a little more than a point and a half.
There is also a point and a half of improvement due to the favorable comparison to the fourth quarter of 2019, which was elevated due to the reestimation of losses for prior quarters.
Turning to the top-line.
In light of the ongoing macroeconomic challenges, we remain pleased with the resilience of our business.
Net written premiums were only slightly lower than the prior year quarter with strong rate and high retentions mostly offsetting modestly lower levels of insured exposures as well as lower new business.
The lower insured exposures reflect lower levels of economic activity as well as impacts from our active management of terms and conditions and deal structures, including deductibles, attachment points and limits.
Turning to domestic production.
We achieved a record renewal rate change of 8.4%, up almost four points from the fourth quarter of last year, while retention remained high at 83%.
This quarter marks the eighth consecutive quarter and with renewal rate change was higher than the corresponding prior year quarter.
We continue to achieve higher rate levels broadly across our book as rate increases in all lines other than workers' compensation were meaningfully higher during the quarter as compared to the prior year.
Importantly, we continue to feel great about our deliberate and granular execution in terms of rate and retention on an account-by-account and class-by-class basis.
The segmentation beneath the headline numbers was once again excellent.
Also, one other thing that's not apparent in the headline numbers is the contribution to margins from the active management terms, conditions and deal structure that I mentioned a minute ago.
We're doing this broadly across the book, but most notably, in our National Property business.
The tighter terms tend to persist beyond the rate cycle.
New business of $440 million was down $35 million from the prior year quarter.
Given the lower levels of economic activity and given the hardening market conditions, there is a higher proportion of distressed business in the market.
Our new business production reflects our disciplined approach to that business.
Risk selection is particularly important during circumstances like these.
As for the individual businesses, in Select, renewal rate change increased to 4.2%, up more than two points from the fourth quarter of 2019 and more than one point from the third quarter of this year.
Retention of 77% was down from recent periods, a result of deliberate execution as we pursue improved returns in certain segments of the business.
As I mentioned above, we're pleased with the segmented execution underneath the aggregate result.
Importantly, we have not slowed down on our commitment to invest in product development and ease of doing business, which position us well for long-term profitable growth in this business.
In Middle Market, renewal rate change increased to 9.1%, while retention remained at 86%.
Renewal rate change was up 4.5 points from the fourth quarter of 2019 and almost a point from the third quarter of this year.
Additionally, we achieved positive rate on more than 80% of our accounts this quarter, a more than 10 point increase from the fourth quarter of last year.
To sum up, we feel terrific about our results and execution, especially given some of the unusual economic challenges related to the pandemic.
We continue to improve the profitability of the book, while investing strategically for the future.
These investments include enhancing the experiences for our customers and distribution partners, developing new insights for our underwriters, digitizing the underwriting transaction and creating efficiencies.
Examples of capabilities released this year include, rollout of our completely redesigned BOP 2.0, small commercial product which includes industry-leading segmentation and a fast easy quoting experience.
This new product is now available in 23 states and performing consistently with our expectations.
Advancement of our industry-leading strategic work intake initiatives which allow for automated receipt of submissions from the various technology solutions our agent partners use and the seamless routing of those submissions which improves the experience for our distribution partners and is more efficient for us.
Enhancing our MyTravelers customer self-service application.
And lastly, our Simply Business and Zensurance platforms continue to advance their digital capabilities and offerings in the alternative platform space.
We're as confident as ever that strategic investments like these, together with our meaningful competitive advantages, position us well for long-term profitable growth.
Bond & Specialty delivered strong returns and double-digit growth in the quarter despite the ongoing headwinds of COVID-19.
Segment income was $164 million, nearly flat with the prior year quarter as the benefit of higher business volumes and a higher level of net favorable prior year reserve development were offset by an underlying combined ratio, which while still strong at 85%, was higher than the prior year quarter.
The underlying combined ratio of 3.7 points, driven by the impact of higher loss estimates for management liability coverages, primarily losses attributable to COVID-19-related economic conditions.
As we discussed last quarter, the products that we write in this segment are susceptible to elevated loss levels in times of severe economic downturn.
We experienced that during the financial crisis, and again, in recent quarters due to the impacts of the pandemic.
Nonetheless, with the strong rate levels we're achieving, we expect that the underlying combined ratio in 2021 will improve a little bit from the roughly 87% in the second half of 2020.
Net written premiums grew an outstanding 12% in the quarter, reflecting continued improved pricing in our management liability business with nearly flat Surety production despite the continued economic impact of COVID-19 on public project procurement and related bond demand.
In our domestic management liability business, we're pleased that renewal premium change increased to a record 10.9%, driven by record high renewal rate change, while retention of 89% remained near historical highs.
These production results demonstrate the successful execution of our strategy to pursue rate in light of elevated loss activity, while maintaining strong retention levels in our high quality portfolio.
We will continue to pursue rate increases where warranted.
Domestic management liability new business for the quarter increased $13 million, primarily reflecting our thoughtful underwriting in this elevated risk environment.
Consistent with last quarter, submissions are up, while quote activity is down.
So Bond & Specialty results were again strong despite the challenges brought on by COVID-19.
Beyond the numbers, notwithstanding our focus on managing through the challenging environment, we continued to invest in differentiating our businesses in the eyes of our customers and agents and broker partners, while positioning ourselves for continued profitability and competitiveness in the future.
Some highlights from 2020 include, continuing investments in our Surety business to help our contractor clients more effectively manage risk, while providing insights that will enable them to more profitably manage their business.
Piloting digital platforms that will improve the speed and convenience of accessing management liability and small surety products for our agents and brokers.
And investing in a new sales management platform that will enhance productivity, optimize workflow management and increase sales.
In Personal Insurance, we're very pleased with our fourth quarter and full year results.
For the fourth quarter, segment income increased to $457 million and our combined ratio improved to 84.1%.
Full year's segment income was $1.2 billion and the combined ratio was 89.7%.
The significant improvement for both periods compared to the prior year is primarily driven by lower frequency of automobile losses as well as the benefit to underwriting income from higher business volumes.
In addition, the full year results include higher net favorable prior year reserve development and elevated catastrophe losses.
Net written premium growth for the fourth quarter and full year was 7% and 5% respectively with continued strong retention and higher levels of new business, resulting in record net written premiums of more than $11.3 billion for the year.
Agency Automobile profitability was very strong with a combined ratio of 86.5% for the fourth quarter.
The underlying combined ratio for the quarter improved 12 points, continuing to reflect favorable frequency levels.
Approximately one-third of the improvement in the quarter is from favorable reestimates of activity for prior quarters in 2020.
We continue to observe lower claim frequency as a result of fewer miles driven, reflecting the ongoing impact from the pandemic.
We will continue to analyze and incorporate current trends into our state-specific underwriting and pricing decisions as we balance business volumes and profitability.
In Agency Homeowners & Other, the fourth quarter combined ratio of 81.9% increased relative to the prior year quarter, driven by a higher underlying combined ratio and an increase in catastrophe losses.
The fourth quarter included one catastrophe, Hurricane Zeta, with no recoveries from the Catastrophe Aggregate Reinsurance Treaty.
The underlying combined ratio of 78.5% was five points higher than the prior year quarter due to higher non-catastrophe weather-related losses, and to a lesser degree, increases in other losses, specifically elevated fire losses.
The full year combined ratio of 93% was comparable to the prior year with increased favorable prior year reserve development and improved underlying results, offset by elevated catastrophe losses.
The underlying combined ratio of 82.9% was almost three points better than last year, driven by lower non-catastrophe weather-related losses.
This improvement demonstrates the success of our continuing efforts to improve returns in property, while growing the business.
Turning to quarterly production.
Overall results were again very strong.
We're pleased with our momentum in Agency Automobile.
Retention was 84% and new business increased 12%, contributing to the 3% year-over-year growth in policies in force.
Renewal premium changes were lower given our pricing actions in response to the favorable loss environment.
We continue to see growth in this profitable line.
Agency Homeowners & Other delivered another excellent quarter with retention of 85% and a 21% increase in new business, while renewal premium change again exceeded 8%.
Policies in force were up 8% from a year ago.
These results reflect our continued efforts to grow, while improving profitability.
Looking back, 2020 was both a challenging and successful year for Personal Insurance.
We achieved record levels of segment income, net written premium and policies in force.
Our continued success reflects the execution of our strategy to meet customers where they are, give them what they need and serve them how they want.
Examples include, nearing completion of our Quantum Home 2.0 rollout, which is now available in over 40 states.
Increasing the take-up of IntelliDrive by enhancing our Auto Telematics offering in 17 states.
And just this week, we introduced IntelliDrive in Canada as well.
Improving our customer self-service capabilities with our new MyT mobile app, which will be rolled out more broadly throughout the first quarter of 2021.
Planting an additional 500,000 trees for customer enrollment in paperless billing, bringing the total number of trees planted through our partnership with American Forest to 1.5 million.
And just recently, announcing the acquisition of InsuraMatch, an innovative digital online platform that allows customers to compare offerings for more than 40 carriers across the United States.
We expect to complete the acquisition in the first quarter of 2021, subject to customary closing conditions.
We have strong momentum going into 2021 and are well positioned to deliver profitable growth, while investing in capabilities that will continue to enhance the value of our franchise.
Michael, this is Tom Kunkel.
I just want to jump in quickly and mention that I did misspeak when I was discussing management liability new business.
I believe I said it increased by $13 million, and it is -- it actually decreased by $13 million.
And operator, we are now ready to turn to questions.
 Assistant:

Chosen response:
travelers qtrly core earnings per share $4.91.
travelers companies - qtrly core earnings per share $4.91; qtrly earnings per share $5.10.
travelers - qtrly core income increased due to higher underlying underwriting gain, higher net favorable prior year reserve development.
travelers - qtrly core income also increased due to higher net investment income & lower catastrophe losses.
travelers companies - qtrly net written premiums $7.27 billion, up 3%.
travelers - qtrly catastrophe losses, net of reinsurance $29 million pre-tax versus $85 million pre-tax.