Q1 2021 Selective Insurance Group Inc Earnings Call

[music].

Good day, everyone and what comes to the selective insurance groups first quarter 2021 earnings call.

The time for opening remarks, and introductions I would like to turn to go over it sort of a senior Vice President Investor Relations and Treasurer Rohan Pi. Please begin.

Good morning, everyone.

Total cost in this call on our website selective dot com and the replay will be available until May 28 2021.

A supplemental investor package, which provides GAAP reconciliations of any non-GAAP financial measures referenced today also is available on the investors page of our website.

The David will discuss our results and business operations using GAAP financial measures that are also included in the annual quarterly and current reports filed with the U S Securities and Exchange Commission non.

Non-GAAP operating income of non-GAAP operating return on common equity, which we used to analyze trends in operations and believe makes it easier for investors to evaluate our insurance business.

Non-GAAP operating income is net income available to common stockholders, excluding the after tax impact of net realized gains the losses on investment and unrealized gains or losses on equity securities and non-GAAP operating return on common equity as measured as non-GAAP operating income divided by average common shareholders equity.

And the statements and projections about our future performance. These forward looking statements under the private Securities Litigation Reform Act of $19 95 are not guarantees of future performance and are subject to risks and uncertainties for a detailed discussion of these risks and uncertainties. Please refer to our annual and quarterly reports filed with the U S Securities and exchange can.

Mission, which includes supplemental disclosures related to COVID-19 pandemic you should be aware of selective undertakes no obligation to update or revise any forward looking statements.

On today's call are the following members of selective the executive management team, John <unk>, President and Chief Executive Officer.

And Mark Wilcox Chief Financial Officer, now I will turn the call over to John.

Thank you Ron and good morning all.

Some opening remarks on our first quarter of financial performance and outlook and then turn it over to Mark to provide the details on our results I'll return to provide an update on some of our strategic growth initiatives before opening the call up for questions.

We're off to an excellent start in 2021 with a 16, 2% annualized non-GAAP operating Roe.

This was an exceptional result in the context of the challenging economic backdrop continued overall lower interest rate environment and elevated catastrophe losses for the industry.

It was also well above our operating ROE target of 11% continuing our strong track record of consistent and superior results.

Our first quarter results reflected strong contributions from both underwriting and investment operations.

Our solid premium growth of 11% when adjusted for the prior year COVID-19 related audit premium accrual was driven by overall renewal pure price increases, averaging five 4% and strong retention rates.

Our continued ability to generate solid premium growth and the current economic climate.

Is driven in large part by our extremely strong distribution partner relationships.

<unk> and granular pricing and underwriting tools and superior customer service and capabilities.

Our 89, 3% combined ratio for the quarter benefited from catastrophe losses that were in line with our expectations and four eight points of favorable prior year Casualty Reserve development.

Our solid underlying combined ratio of 90% is a testament to the quality of our book of business.

While we have seen early signs of a return towards normal economic activity, depending on geography and class of business overall claim frequencies in the quarter have remained below pre COVID-19 levels.

That said much uncertainty remains regarding the impact of late reported claims and increased severities there.

For our 2021 accident year casualty loss ratios remain on plan and our 2020 casualty loss ratios remain at the levels of booked at year end 2020.

I'd like to highlight a few key themes for.

First we continue to execute extremely well against our objectives of balancing growth and profitability.

While it is easy to grow in our industry generated consistent and profitable growth is far more difficult.

The tailwind of higher market pricing has certainly helped our execution over the past year, but what often gets overlooked is the are consistent and disciplined approach over the long term.

We've established a decade long track record of obtaining renewal pure price increases that are in line with or above expected loss trend.

This approach positions us with the lower rate need the some of our competitors who have needed to make up for several years of renewal pure pricing well below expected loss trends.

Having confidence in the quality of our overall book and strength of our reserve position enables us to grow as we see additional business opportunities that meet our profitability expectations.

For the first quarter commercial lines renewal pure price increased five 7%, while renewal retention rate remains extremely strong at 86%.

Of 100 basis points from a year ago.

For smaller accounts with policy premium of less than $10000 renewal pure price increased 5% in the quarter, while larger accounts in excess of $100000 in premiums generated renewal pure price increases of 6%.

Across all size cohorts of our highest quality accounts based on future profitability expectations, which constitute 25% of renewal premiums produced three 3% pure rate and point of renewal retention of 93%.

Our lowest quality accounts, comprising 10% of our renewal premiums generated 10% pure rate and point of renewal retention of 83%.

By understanding the risk and return characteristics of each basket of policies, we're able to administer our pricing and retention strategies from an extremely granular basis.

This has allowed us to increase retention, while generating loss ratio improvement through an improved mix of business.

Second while long term interest rates are up so far this year.

They still remain extremely well from an historical perspective.

The low interest rate environment will lower book yields on the investment portfolio and the related ROE contribution from investment overtime.

Our investment strategy is designed to be conservative with the goal of supporting our underwriting operations from a capital and liquidity standpoint.

We do not intend to materially change investment allocations of the Mena means of generating higher yield and our focus will remain on increasing underwriting margin to offset the impact of lower interest rates to generate adequate returns.

This is an industry wide issue, putting greater pressure on companies that are not generating targeted returns to further improve underwriting performance.

Third industry wide pricing for the property lines should increase to better reflect continued elevated losses from catastrophe and non catastrophe weather related events the hello.

Weighted industry catastrophe losses in the quarter, particularly for winter storms urea and <unk> reflect a continuation of the increasing trend in frequency and severity of weather related events.

We booked a $70 million net loss in aggregate for both of events we.

<unk>, our catastrophe risk through a disciplined underwriting process and a conservative reinsurance program that attaches of $40 million per occurrence within our primary footprint states.

This retention force of $5 million for states that are outside of our standard lines footprint.

Climate related loss activity, including those from the Hurricanes convective storms Hailstorms wildfires direct challenge and winter storms have resulted in substantial losses for the industry in recent years and remains a major risk going forward.

The climate change poses a longer term risk for our industry, our business and our customers, resulting in higher frequency and severity of catastrophic losses are.

Of our climate risk mitigation strategy is focused on understanding and mitigating the catastrophe risk on our business and helping our customers mitigate the risk and recover quickly after experiencing losses.

Finally, I wanted to highlight the extremely strong capital and liquidity positions at our holding company and insurance subsidiaries, which remain at record levels.

We have more than adequate capital to support our strong organic growth, while also evaluating other attractive capital deployment options.

Late in 2020 of our board authorized a $100 million share reported repurchase program, which we have begun deploying opportunistically at price points that we believe generate attractive returns for our shareholders.

I'll come back to provide additional commentary, but now I will turn the call over to Mark to review the results for the quarter.

Thank you John and good morning, I'll review, our consolidated results discuss our segment operating performance and finish with an update of <unk>.

<unk> position a guidance for 2021.

For the quarter, we reported excellent net income available to common stockholders per diluted share of $1 77 of <unk>.

First quarter non-GAAP operating earnings per share of $1 <unk>, we reported an annualized ROE of 16, 8% of non-GAAP operating ROE of 16, 2% with meaningful contributions from both our insurance and investment operations our.

Our results for the quarter compared favorably with our 2021 non-GAAP operating ROE target of 11% of set earlier this year, which translated set of approximately 400 basis points spread of our weighted average cost of capital.

Overall, we're off to a very strong start to 2021 from the growth and profitability perspective.

Consolidated net premiums written increased 23% compared with the year ago or 11% when adjusted for the COVID-19 related $75 million imported premium accrual booked in the prior year period the.

The primary drivers of our top line growth was strong renewal pure pricing and higher retention in commercial lines and the strong renewal pure pricing and solid new business growth in our E&S segment.

First of all lines premiums continues to be on the pressure.

We reported an extremely strong consolidated combined ratio of 89, 3% for the quarter include.

Included in the combined ratio of $30 million of catastrophe losses, which accounted for four one points and 75 million of net favorable prior year casualty reserve development of $4 eight points on an underlying basis or excluding catastrophes and prior year Casualty reserve development. The combined ratio was 90% of the quarter compared.

For the 93, 1% from the prior year period, the strong underlying combined ratio reflects a lower first quarter expense ratio of better than expected non cat property losses. In addition recall that last year of first quarter combined ratio included three points included three five points of COVID-19 related items.

Moving to expenses our expense ratio was 32, 1% for the quarter the peg.

75, 2% for the prior year period the.

The year ago expense ratio included two one points of specific COVID-19 related items, including the provision for bad debt and the.

Earned impact of the audit premium accrual.

The primary drivers of the underlying expense ratio improvement for ongoing expense management initiatives and reduced travel and entertainment as well as the lower overhead general and administrative expenses and we expect travel and entertainment expense to start by going back to more normal levels. During the course of the year. We continue to expect some expense ratio improvement this year of today.

Ex.

Corporate expenses, which are principally comprised of holding company costs of our cup stock compensation, both $9 $6 million in the quarter compared to $9 1 billion a year ago due to slightly higher stock based compensation expense that was driven by the increase of our stock price, which impacted the variable component of our long term incentive compensation plan.

Turning to our segments for the first quarter of expanded commercial lines increased net premiums written 28% or 12% when adjusted for the year ago of $75 billion of order price from accrual as a reminder, the $75 million reduction in our first quarter 2020, net premiums written from the audit accruals impacted our general liability line.

46 million workers.

Workers compensation line by $29 million.

We have recorded $70 million of negative audit of the midterm endorsement premiums against the accrual over the last year and the accruals outstanding of $5 million.

With the forecast for significant growth in the U S for the remainder of the TFS.

The spec audit of the midterm endorsement premiums to become a tailwind later this year.

So any sort of retention of price and incentives commercialized our retention increased 100 basis points of the comparative quarter to 86% of the.

Normal fuel price, which has been the increase in the recent quarters was a healthy five 7% new those of Tahoe was down one percentage year over year, and what was the competitive environment.

The commercialized combined ratio was 88, 2% for the quarter and included two seven points of catastrophe losses, and five one points of net favorable prior year casualty reserve development. The favorable prior year Reserve development consisted of $15 billion from each of the book is compensation and general liability lines of business due to favorable.

Clients of <unk> for accident years, 2018 and product.

The underlying combined ratio was 96%.

And our personalized segment, we reported a 4% decline of net premiums written for the quarter, reflecting continued competitive market conditions, particularly the proposal of auto.

The renewal pure price increases average <unk>, 8% retention was flat relative to a year ago at 83% of new business volume was down 1%. The combined ratio in the quarter was 89, 6% at the underlying combined ratio was 82%.

E&S segment, we reported 10% of net premiums written growth for the quarter relative to a year ago renewal pure price increases averaged seven 3% of new business was up a strong 14% the.

The combined ratio for the segment was elevated at 99, 2% in the quarter driven by catastrophe losses of $8 3 billion that contributed $13 three points of the combined ratio.

The cat losses for principally driven by $5 1 billion of net losses from one system Europe for.

Recall, we write E&S business across all 50 states by.

Prior year casualty favorable reserve development totaled $5 billion and load of the combined ratio by eight one points. The underlying combined ratio of 94% reflects the non cap property volatility of resulted in the non cat property loss ratio for six points above the comparative quarter.

Moving to investments our best for the portfolio remains well positioned as of the quarter and 92% of our portfolio was invested in fixed income of choice of investments with an average credit rating of double able items and an effective duration of three nine years offering a high degree of liquidity risk assets, which include our high yield allocation.

Contained within fixed income public equities and limited partnership investments in private equity private credit and real asset strategies represent 10, 9% of our investment portfolio with the increase of 10, 4% at year end, primarily driven by increased valuations.

After tax net investment income of $56 $3 million was up 24 per site from the comparative quarter with the gross spread with primarily by $16 million of off the tactical third of the investment gains, which we've reported on a one quarter lag. The after tax yield on the total portfolio was 3% for the quarter delivered a very strong eight nine points of our re contribution.

The total return of the portfolio was negative <unk>, 4% for the quarter reflect the impact of pricing longer dated benchmark interest rates of the value of our fixed income securities portfolio, which for that offset the continued decline in credit spreads.

The average after tax new money yields of fixed income purchases during the quarter continued to decline of almost one 7% compared with two 2% for the fourth quarter of two 4% for 2020.

Cash flow of strong with $170 million of operating cash flow for the quarter, which equated to <unk>, 16% of net premiums written.

Turning to the capital our capital position remains extremely strong with $2 seven full bill of GAAP equity, we have built significant financial flexibility with $490 million of cash and investments at the holding company.

Our net premiums written to surplus ratio is slightly below our target range of 133 times on a debt to capital ratio was 16, 7% at March 31st.

Given our strong capital position, we have the financial flexibility to grow the rates well above 7% to 9% of sustainable growth rate of the sustainable future.

We find attractive opportunities of course, our focus will continue to be of disciplined profitable growth.

At December 2020, our board authorized a $100 million share repurchase program that allows us to opportunistically buy back shares in the open market. When we gained returns are attractive for our shareholders over the long term.

During the quarter, we repurchased approximately 53000 shares at an average price of $64 40 guidance for a total of $3 4 billion, leaving $96 6 million of remaining capacity of our share repurchase program.

We have not repurchased any shares subsequent to quarter end.

I'll finish with some commentary on the updated guidance for 2021.

We now expect the GAAP combined ratio, excluding catastrophe losses of 90%. This is an improvement from our prior guidance of 91%.

Next the strong profitability inclusive of the net favorable casualty reserve development in the first quarter, our guidance assumes no additional prior to the the casualty reserve development of.

Of catastrophe loss assumption remains for points on the combined ratio. We're now projecting after tax net investment income of 195 billion, including $31 million in after tax gains from our alternative of divestments. This is up from our prior guidance of $182 million and principally reflects the increase in net investment income for the alternatives.

We continue to expect the overall effective tax rate of approximately 25%, which includes an effective tax rate of 19% for net investment income in 'twenty, one percentage for all other items and weighted average shares for <unk> 65 billion on the diluted basis.

With that I'll turn the call back over to John.

Thanks, Mark I'd like to highlight some of our major areas of strategic focus as we move through 2021.

We continue to execute on our plans to generate profitable growth at significantly outperforms commercial lines of industry results. Our solid capital position provides us with the flexibility to of Berry valuate various growth opportunities and focus is on those that enhance our market position with our customers and distribution partners, while generating attractive re.

Turns for our shareholders.

We continue to identify ways to bring additional value to our marrying of stakeholders to further build the franchise and is positioned for long term strategic and financial outperformance.

The major drivers of our organic growth strategy in commercial lines, our increasing share of our distribution partners overall premium for 12% of <unk>.

Point of new distribution partners to achieve a 25% agent market share and expanding into new states.

As we've been highlighting on recent calls we continue to invest in tools and technology that enhance our market position with our agents for.

The market match tool, which provides our distribution partners with insights into their overall portfolio and identifying opportunities for them to grow their business with US has now been rolled out to approximately 300 of our distribution partners and we expect the increases to 400 by year end.

<unk> seen strong acceptance among our partners, who are often eager to consolidate their business with fewer carriers that can offer superior service and offerings, while optimizing your overall relationship.

We rolled out our new small business platform for BOP products to all agents in the fourth quarter of 2020, we significantly streamline of quoting an issuance of process for these accounts and experienced a strong increase in bobs small business submissions since the rollout.

During the first quarter, we expanded the platform to include coverages, such as general liability and bundled in the marine for small contractors with additional products and a broader rollout planned for the remainder of the year.

In personal lines, we are on track for the third quarter launch of our homeowners product targeting the mass affluent market of customer base that places greater importance on coverage and service.

Later this year, we planned for launch coverage enhancements to our auto product designed to better serve this customer segment.

We've already seen some positive momentum in our mix of business prior to the official launch.

We saw solid growth in our E&S segment during the first quarter and expect the improving performance moving forward as we continue to rollout our new agency automation platform that will further enhance our competitive position.

As we look for the remainder of 2021 I remain extremely confident about our unique market position and strategy, we have the tools talent capabilities and distribution partnerships in place the position US for continued excellent performance, we have demonstrated over the past seven years, our ability to leverage these capabilities to generate consistent.

Double digit Roe.

While profitably growing the business at a healthy rate.

With that we will open the call up for questions operator.

Thank you. Thank you we will now begin the question and answer session. At this time for participants if you would like to ask the question. Please.

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Speakers, we will just give us your second for participants to queue up for questions.

Thanks.

Speakers, we do have questions in queue allow me one second to get thanks for me. Thank you.

Speakers. Our first question is coming from the line of Mike <unk> from JMP, Matt Your line is open.

Hey, Thanks, good morning.

Good morning morning.

Just a couple of questions on day.

Standard commercial Mark.

Yes, I always start with the keep up the speak fast I believe you split out.

The the audit premium COVID-19 related headwinds the $75 million across I think I caught $29 million in workers' comp, maybe I'm, making that up.

And the problem assuming GL is the other piece of it is that is that correct for those of the buckets.

You have it correct, Matt It was $29 million of workers' compensation in Q1, 2020, and $46 million in general liability in Q1 2020 for the total of $75 million.

Wanted to provide those because of the growth rate for those lines of business look for the of the stage on a comparative quarter Ddos adjusted for that.

Yeah, perfect and then yes. So following on that I mean, if we adjust particularly.

Particularly workers' comp.

For that it was a pretty nice acceleration in growth even adjusted for that.

Can you talk a little bit about what's going on there. The just the return to the better work activity. So the.

The more kind of payrolls on your existing accounts or is it more new business flow.

Matt.

Yes, Matt This is John I'll take that so I think <unk> got a few things happening there and part of it is price related more so for general liability of than it is for workers comp where pricing is still relatively flat and we also see exposure starting to improve so we saw an all lines basis and I'm not breaking out specifically the individual lines.

But on an all lines basis in commercial lines in Q1 of.

Our exposure was up just under one 5%. So I think that's the other part of it and then you add to that about 100 basis point increase in retention rates and those are all contributing to growth new business was relatively flat overall.

And again mixed matters in terms of the segments that we write and I think we saw a little bit stronger growth in the quarter and manufacturing of little bit flatter and contract for you. So some of that will also push around your individual lines of little bit, but I would say those were the major drivers I guess strong retention of little bit of a bump up in exposure on the renewable portfolio.

And so price working through there.

Okay, Great and then just one other modeling question the.

The $16 million of cats in that segment.

Do you have the the.

The what.

I'm, assuming the bulk was commercial property, but maybe some fell on the BOP and commercial auto.

Yes, just give us the second to get to that yes most of it.

In commercial property, but I can kind of break that out of the life. So of the six day call. It six to $8 1 billion of cats and <unk>.

Standard commercial lines in Q1, $13 7 million came out of commercial property.

And then the balance came out of the block, which is 2.2 of the little bit of commercial but it was approximately 200000.

Those of the three.

The breakout at the taxes for the three different lines of business.

Okay perfect well. Thank you that's all I got congrats on the nice start to the year.

Great.

Thank you speakers. Our next question is coming from the line of Mirror Shields Meyer. Your line is open from <unk>. Please go ahead.

Great. Thanks, gentlemen.

Gentlemen, I'm trying to understand some of the marketplace dynamics and the impact on your expectations.

Basically the premise is that we're seeing true.

<unk> retention rate on smaller accounts decline.

And I'm wondering is that influencing growth and is there a different from the quality of the accounts.

You're right when you win them from bigger competitors compared to what you went from smaller competitors.

Yes.

First of all tough questions the answer.

I'll hit the second one first which was relative to where the where the competitor that the business was prior primarily a priority written.

Don't necessarily see the difference there in terms of expected performance because we look very closely each quarter at what our new business pricing is relative to target by the previous insurer. So we know where the business is coming from we know where it is by class and what our pricing deviation is against each of those competitors.

So let me kind of a fairly low level of detail and I would say there is no difference in the pricing we need to win accounts from a larger company of them from a smaller company. So there's nothing out of CVR that would suggest that the profitability of expectation going forward.

Should be any different with.

With regard to your to your first the first part of your question Hey, guys.

I can't speak for travelers.

Great competitor in the marketplace, but on the on the small commercial side for US we pride ourselves on driving Retentions higher because of our book of business is so strong and we focus really on the two areas one of which is being as granular as possible.

How we manage our pricing strategy, that's why we disclose each quarter, what our pricing is for the where we expect to be the best cohorts versus those that we think need a little bit more price and the relative retentions on bulk and I think thats an important consideration for the other part of this is and I know we continue to point to this but the track record.

Over 10 years of managing pricing on a consistent basis relative to expected loss trends allows us to be of very consistent player in the market for our distribution partners. So youre not getting that big rate movement from one year to the next which causes the fair amount of disruption.

And then the final point that I'll make I. This is not relative to any individual competitor or books of business are different in terms of of what we write and I think if you look at our small business makeup.

It does tend to be a little bit less focused on small retail restaurants. Some of the most heavily impacted accounts from a pandemic perspective, and I think that has probably helped our because it's more contractors focus has probably helped our retention hold up a little bit stronger than some that might have a slightly different.

Mix of business.

Okay, that's very very helpful.

The second question.

Assuming and this is maybe my words, not yours, assuming that we have sort of unprecedented.

Audit premiums coming over the next 12 months are there any G&A expenses associated with that.

Yes.

G&A per se, but you would have the commission associated with it. So it doesn't come through will come through on a written and earned basis, but what you would have the associated commission associated with it but not necessarily incremental G&A.

Yes the.

Another part of it is because of that premium does bring with it exposure. So from a loss ratio perspective, I don't know that I would anticipate that there is a big uplift in profitability and again I realized companies will try to parse exposure that acts like rate versus exposure of it doesn't act like rate and that could get challenging.

When you are adding a vehicle that's exposure to AG, obviously brings with it additional losses, if youre payrolls are driving exposure increase by your number of employees are staying stable youre still getting some additional exposure of every picture of indemnity costs are going to go higher on a relative basis, but I also want to make sure I mean, we were very.

Careful in terms of taking the action on our own at premium accrual that we thought was appropriate. So we carried on our premium reserve, we felt an obligation to reasonably estimate that amount, we did and we recorded that and it really allowed us to manage the the change in exposure a lot more proactively.

I don't know that I would necessarily anticipate some massive rise and exposure for companies. That's just going to be driven by a bounce back in the economy because for the most part you've got current certainly comp and GL are influenced by audit premium and exposure change when you've got a lot of other non auditable lines, whether it's for business owners in line.

Or the property line and again property line will be influenced.

Building values go higher and you've got some inflationary adjustments built in there, but im not sure youre going to see this massive bounce back and exposure come through and positively influence from companies in terms of profitability.

No. That's very helpful. I was really looking for with us on the expense ratio of but that was tremendously informative. Thank you.

Thank you Mark.

Thank you.

It's all participants over the phone if you would like to ask the question. Please press star followed the number one selling for.

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Our next question is coming from the line of Scott for.

RBC capital markets.

Your line is open. Please go ahead.

Yes, good morning.

Morning, Scott.

Just had a.

For your hearing of the first just wondering if you could touch a little bit on.

Yes, the frequency versus severity of kind of across a couple of the major lines.

Yes.

Obviously, the frequency part of it is pretty favorable right now given where the economy has been in the past few quarters.

We've seen that across a number of companies, but I'm wondering if you could talk about this.

For the severity of part of it as well, particularly in workers comp GL and commercial auto we've heard.

Particularly in commercial auto Workers' comp issue for your company is talking about some increases in severity, even though the frequency is down and I'm just wondering what youre seeing in your book and some of those key lines.

Yes, I think this is John I think what we're seeing is fairly similar.

<unk> suggests that the severity is that much different from expected and certainly isn't to a level, where it's where it's overcoming the frequencies that are generally come in better than expected and again I want to put this in context of our the approach we've always taken which is youre talking about evaluating the actual severity.

He is versus expected severity is looking back at your more recent prior accident years. So the question is why don't you have embedded in there and I think the fact that we have routinely included.

And increasing expected loss trend in those loss picks has allowed us to absorb what might be a little bit of movement from of severity perspective, but I would say generally speaking.

You are spot on with regard to the <unk> com, which is frequencies have run much better than expected severities have emerged a little bit worse than expected, although not enough to overcome that that improvement in frequency I think of auto has been a little bit different and I think we are excited this pretty consistently which has been more of a frequency driven.

At least for US looking back is more of a frequency driven impact that's impacted those prior loss ratios lessor of severity.

But again. These are these are things you want to monitor going forward I think it's very hard to comment at this point on the most recent accident years, certainly 2020 with the immaturity of that book and the fact that frequencies did perform much better than expected. We've highlighted the uncertainties around severity, but just a quarter out from year end, it's real.

Hard to put any premiums and what we're seeing in terms of incurred severity.

Okay. That's helpful. It makes sense.

And then just.

I Wonder if you could give a little more detail on the reserve of leases I know you mentioned for our commercial lines you mentioned.

2018, and previous accident years. It. This is the highest level of releases, we've seen in a while and I'm, assuming it's in workers' comp and GL, mostly so if you could comment on that as well as the E&S line, which.

Releases for the first time in quite a long time and I'm wondering if you can just give a little more detail on.

Some of those areas.

So Scott this is mark why don't I start and John can jump in as well so youre absolutely right.

The net favorable casualty reserve development was pretty significant in the first quarter of $35 billion of four eight points of benefit of the combined ratio.

The $70 million of that as I mentioned within the standard commercial lines.

The 15 of that in Egypt Workers' compensation and general liability and then for the first time, we did see favorable claims of the budgets within.

Within the E&S. So that was five billings for the 75 billion in total as I mentioned in my prepared comments. It was really 2018 of price and if you would break that up just provided a little bit more specificity of about 13 came out of the 18 year.

11 out of 2017 for out of 16 and two out of the 15 of that that's the majority of our $30 million of the $35 billion at ex what we where we essentially consolidated for April claims of <unk>, which we responded to in the quarter.

So I think when you look at it by individual accident years. These are not big numbers coming through on an individual accident year basis, but the other thing for comparative purposes. If you look back over the last couple of years, we did have probably an offsetting movement in commercial auto going the other way of that probably the tempered some of the overall reserve release impacts which is not the case, yes.

And as Tom mentioned in his prepared comments, we haven't.

Any adjustments to the mass spec for the 2020 years, so it's still a little bit too early to the response zone at <unk>.

Trends that might be coming through from the 2020 yet.

Alright perfect.

The last question just on the renewal pricing it ticked up a little bit in Q1 versus Q4 for me.

The other companies we've seen of that's sort of kind of seen of leveling off for even a slight deceleration in the pricing.

And I'm wondering if you can talk a little bit about.

I know you mentioned some detail on what youre kind of seeing on pricing, but.

Do you expect that that kind of the trend to continue.

To build as the year goes on and.

Well the share anything with what Youre seeing in April.

Pricing wise.

So we haven't and don't play out of sharing anything where the about April on this call and let me just talk a little bit about the market on a go forward basis and I do think Scot I know we've mentioned this in the past each company's portfolio is different and their line of business mix is different and I still think of what we're seeing in the marketplace from a headline price.

James number is being driven by a lot of the high exposure lines that we don't really plan. So whether it's your professional lines you are of high hazard property your excess limit significant excess limits on the more hazardous classes those of the numbers that were really driving the high reported pricing that you saw and I think.

You probably are starting to see a little bit of temporary there, but on the smaller and middle market and of the.

The pricing scale when you look at the various surveys I would say, it's been holding pretty steady and at least of the smallest end of the market you've seen some other companies see some sequential improvement in our underlying pricing on a go forward basis similar to what we saw and again I think it's always important to reinforce and I'm not I'm not projecting out.

The rate expectation for the year, but just want to talk about the market dynamics that we think.

To push.

Yes.

The manner of that suggest rate will remain strong relative to expected loss trends and number one of the low for long interest rate environment and again we.

We're pleased with our results.

We also don't get.

Overwhelmed by the fact that we had a strong alternative investment quarter and on the core fixed income for us and everybody else. Your new money rates are still running below of what is what is rolling off for maturities and other disposals. So there is some pressure of that everybody is feeling when a project forward margins and realize that they're going to have the make up for that on the underwriting side.

I touched on in the prepared remarks, the cat and non cat losses, which continue to be elevated for everybody.

Pretty as a line that everybody recognizes now they need to run at a much lower combined ratio in a normal loss year, because they're going to have those years like we've seen in the last couple and manage the price into the product you've got affirming reinsurance market that has not gone away from us not just about pricing, but it's also about terms and conditions in certain cases.

And you've got elevated loss trends and I think that's an important point and some are talking about it has launched a new phenomenon over the last couple of years from our perspective, what we would have normally built in several years ago, which is expected loss trend of about three is now running around 4% and thats kind of be made up for in margins and in the final.

Point is while our results are very strong in some of our public peers are also putting up strong results. The broad commercial lines of industry still has work to do in terms of margins and most whether its economy of our ambassador everybody Who's got the commercial lines of industry right around 100 combined ratio.

I think that suggests that margin improvement is necessary without these other influences that we think continue to persist.

Yes collyn.

Makes sense and definitely consistent what we're hearing so anyway I appreciate the all of the answers the best of luck. Thanks.

Alright, thanks, guys.

Yes.

Thank you for Inthe, we didn't have any questions in queue, but once again to ask the question. Please press star followed by number one please record your name and the only win from tube and to come from your request. Please press star followed by number of tier.

Speakers at this time of we don't have any questions in queue, so with that of.

Go ahead and turn the call over back to John John. Please go ahead.

Well. Thank you all for your time. This morning, we appreciate your participation and your questions and as always feel free to follow up with <unk> or mark with any follow ups. Thank you. Thank you.

Thank you for that concludes today's call. Thank you. So much for all of participation you may now disconnect.

[music].

[music].

Good day, everyone and what comes to selective insurance group's first quarter 2021 earnings call.

Time for opening remarks, and introductions I would like to turn the call over to our senior Vice President Investor Relations and Treasurer Rohan Pi. Please begin.

Good morning, everyone.

Some of the cost in this call on our website selective dot com and the replay will be available until May 28 2021.

The supplemental investor package, which provides GAAP reconciliations of any non-GAAP financial measures referenced today also is available on the investors page of our website.

The David will discuss our results and business operations using GAAP financial measures that are also included in the annual quarterly and current reports filed with the U S Securities and Exchange Commission non.

Non-GAAP operating income of non-GAAP operating return on common equity, which we used to analyze trends in operations and believe makes it easier for investors to evaluate our insurance business.

Non-GAAP operating income is net income available to common stockholders, excluding the after tax impact of net realized gains or losses on investment and unrealized gains or losses on equity securities and non-GAAP operating return on common equity as measured of non-GAAP operating income divided by average common shareholders equity.

And the statements and projections about our future performance. These forward looking statements under the private Securities Litigation Reform Act of 1095 are not guarantees of future performance and are subject to risks and uncertainties.

For a detailed discussion of these risks and uncertainties. Please refer to our annual and quarterly reports filed with the U S Securities and Exchange Commission, which includes supplemental disclosures related to COVID-19 pandemic you should be aware the selective undertakes no obligation to update or revise any forward looking statement on.

On today's call are the following members of selective the executive management team, John <unk>, President and Chief Executive Officer.

And Mark Wilcox Chief Financial Officer, now I will turn the call over to John.

Thank you Ron and good morning all.

Make some opening remarks on our first quarter financial performance and outlook and then turn it over to Mark to provide the details on our results I'll return to provide an update on some of our strategic growth initiatives before opening the call for questions.

We're off to an excellent start in 2021 with a 16, 2% annualized non-GAAP operating Roe.

This was an exceptional result in the context of the challenging economic backdrop continued overall low interest rate environment and elevated catastrophe losses for the industry.

It was also well above our operating ROE target of 11% continuing our strong track record of consistent and superior results.

Our first quarter results for Brexit reflected strong contributions from both underwriting and investment operations.

Our solid premium growth of 11% when adjusted for the prior year COVID-19 related one of premium accrual.

It's driven by overall renewal pure price increases, averaging five 4% and strong retention rates.

Our continued ability to generate solid premium growth of the current economic climate is driven in large part by our extremely strong distribution partner relationships the.

Instigated and granular pricing and underwriting tools and superior customer service and capabilities.

Our 89, 3% combined ratio for the quarter benefited from catastrophe losses of renewed line with our expectations and four eight points of favorable prior year Casualty Reserve development.

Our solid underlying combined ratio of 90% is a testament to the quality of our book of business.

While we have seen early signs of a return towards normal economic activity, depending on geography and class of business overall claim frequencies in the quarter have remained below pre COVID-19 levels.

That said much uncertainty remains regarding the impact of late reported claims and increased severity. Therefore, our 2021 accident year casualty loss ratios remain on plan and our 2020 casualty loss ratios remain at the level of booked at year end 2020.

I'd like to highlight a few key themes first.

We continue to execute extremely well against our objectives of balancing growth and profitability.

While it is easy to grow in our industry generated consistent and profitable growth is far more difficult.

Of the tailwind of higher market pricing has certainly helped our execution over the past year, but what often gets overlooked is our consistent and disciplined approach over the long term.

We've established a decade long track record of obtaining renewal pure price increases that are in line with were of bulk expected loss trend.

This approach positions us for the lower rate need the some of our competitors who have needed to make up for several years of renewal pure pricing well below expected loss trends.

Having comprehension of the quality of our overall book and strength of our reserve position enables us to grow as we see additional business opportunities that meet our profitability expectations.

For the first quarter commercial lines renewal pure price increased five 7%, while renewal retention rate remains extremely strong at 86%.

Up 100 basis points from a year ago.

For smaller accounts with policy premium of less than $10000 renewal pure price increased 5% in the quarter, while larger accounts in excess of $100000 premiums generated renewal pure price increases of 6%.

Across all size cohorts, our highest quality accounts based on future profitability expectations, which constitute 25% of renewable premiums produced three 3% pure rate and point of renewal retention of 93%.

Our lowest quality accounts, comprising 10% of our renewal premiums generated 10% pure rate and point of renewal retention of 83%.

By understanding the risk and return characteristics of each basket of policies, we were able to administer our pricing and retention strategy from an extremely granular basis.

This has allowed us to increase retention, while generating loss ratio improvement through an improved mix of business.

Second while long term interest rates are up so far this year, they still remain extremely well from an historical perspective the.

The low interest rate environment will lower book yields on the investment portfolio and the related ROE contribution from investments over time.

Our investment strategy is designed to be conservative with the goal of supporting our underwriting operations from a capital and liquidity standpoint.

We do not intend to materially change investment allocations of the Mena means of generating higher yield and our focus will remain on decreasing underwriting margin to offset the impact of lower interest rates to generate adequate returns.

This is an industry wide issue, putting greater pressure on companies that are not generating target returns to further improve underwriting performance.

Third industry wide pricing for the property lines should increase to better reflect continued elevated losses from catastrophe and non catastrophe weather related events the Oliver.

The industry catastrophe losses in the quarter, particularly for winter storms urea and viola reflect a continuation of the increasing trend in frequency and severity of weather related events.

We booked a $70 million net loss in aggregate for both events, we manage our catastrophe rest of our disciplined underwriting process and a conservative reinsurance program that attaches at $40 million per occurrence within our primary footprint states the.

As retention force of $5 million for states that are outside our standard lines footprint.

Climate related of loss activity, including those from the Hurricanes convective storms Hailstorms wildfires direct Jones and winter storms and resulted in a substantial losses for the industry in recent years and remains a major risk going forward.

Climate change poses a longer term risk for our industry, our business and our customers, resulting in higher frequency and severity of catastrophic losses, our climate risk mitigation strategy is focused on understanding and mitigating catastrophe risk on our business and helping our customers mitigate the risks and recover quickly after experiencing losses.

Finally, I wanted to highlight the extremely strong capital and liquidity positions at our holding company and insurance subsidiaries, which remain at record levels.

We have more than adequate capital to support our strong organic growth, while also evaluating other attractive capital deployment options.

Late in 2020 of our board authorized a $100 million share reported repurchase program, which we have begun deploying opportunistically at price points that we believe generate attractive returns for our shareholders.

I'll come back to provide additional commentary, but now I'll turn the call over to Mark to review the results for the quarter.

Thank you John and good morning, I'll review, our consolidated results discuss our segment operating performance and finish with an update of the cash.

<unk> position a guidance for 2021.

For the quarter, we reported excellent net income available to common stockholders per diluted share of $1 77 and <unk>.

For the non-GAAP operating earnings per share of $1 72.

The reported an annualized ROE of 16, 8% of non-GAAP operating ROE of 16, 2% with meaningful contributions from both our insurance and investment operations.

Our results for the quarter compared favorably with our 2021 non-GAAP operating ROE target of 11% set early this year, which translated to an approximately 400 basis points spread of our weighted average cost of capital overall, we're off to a very strong solid for 2021 from the growth and profitability perspective.

Consolidated net premiums written increased 23% of compared with the year ago or 11% when adjusted for the COVID-19 related $75 million in premium accrual booked in the prior year period for.

The primary drivers of our top line growth was strong for neuro fuel pricing and higher retention in commercial lines and the strong renewal pure pricing and solid new business growth in our E&S segment.

Personal lines premiums continues to be on the pressure.

We reported an extremely strong consolidated combined ratio of 89, 3% for the quarter include.

Included in the combined ratio of $30 million of catastrophe losses, which accounted for four one points and $35 billion of net favorable prior year casualty reserve development of four eight points on an underlying basis, excluding catastrophes and prior year Casualty reserve development. The combined ratio was 90% of the quarter compared.

To 93, 1% in the prior year period, the strong underlying combined ratio reflects our lower first quarter expense ratio of better than expected non cat property losses. In addition recall that last year, our first quarter combined ratio <unk>.

<unk> three <unk> included three five points of COVID-19 related items.

Moving to expenses our expense ratio was 32, 1% for the quarter compared with 35, 2% for the prior year period. The year ago expense ratio included two one points of specific COVID-19 related items, including the provision for bad debts in the earned impact of the oldest frame of accrual.

The primary drivers of the underlying expense ratio improvement for ongoing expense management initiatives and reduced travel and entertainment as well as lower overhead general and administrative expenses, while we expect travel and entertainment expense to solve for going back to more normal levels. During the course of the year. We continue to expect some expense ratio improvement this year.

The next.

Corporate expenses, which are principally comprised of holding company costs. The bulk of stock compensation totaled $9 6 million in the quarter compared to $9 1 million a year ago due to slightly higher stock based compensation expense of the spread by the increase of our stock price, which impacted the variable component of our long term incentive compensation plan.

Both of our segments for the first quarter standard commercial lines increased net premiums written of 28% from 12% when adjusted for the year ago of $75 million of order price of of accrual as of remind us of the $75 million reduction in our first quarter 2020 that produce revenue from the board of accruals impact of about general liability line by for.

The $6 million on our workers'.

Workers compensation line by $29 million.

Many of recorded 70 million of negative audit of midterm endorsement price against the accrual over the last year and the accrual now stands at $5 million.

With the forecast of significant growth in the U S for the remainder of the TM.

The stack ordered for the midterm endorsement premiums to become a tailwind later this year.

Turning to the retention and price and expanded commercial lines, our retention increased 100 basis points of the comparative quarter to 86% of renewal pure price, which has been the increase in recent quarters was a healthy five 7% new list of target was down 12% year over year, and what was the competitive environment.

The commercialized combined ratio was 88, 2% for the quarter and included two seven points of catastrophe losses of five one points of net favorable prior year casualty reserve development. The favorable prior year Reserve development consisted of $15 million from each of the workers compensation and general liability lines of business due to favorable.

Claims emergence for accident years 2018 of the product.

The underlying combined ratio was 96%.

And our personalized segment, we reported a 4% decline of net premiums written for the quarter, reflecting continued competitive market conditions, particularly for postal OTA for.

Renewal pure price increases average the 8% for.

Pension was flat relative to a year ago of 83% of new business volume was down 1%. The combined ratio in the quarter was 89, 6% of the underlying combined ratio was 82%.

E&S segment, we reported 10% net premiums written growth for the quarter relative to a year ago renewal pure price increases averaged seven 3% of new business was off of strong 14% the <unk>.

The ratio for the segment book to elevated at 99, 2% in the quarter driven by catastrophe losses of $8 3 billion that contributed $13 three points of the combined ratio the.

The cat losses for the price of the both driven by $5 1 million of net losses from one system in Europe for.

Recall, we write E&S business across all 50 states variety of casualty favorable reserve development totaled $5 billion and most of the combined ratio by eight one points. The underlying combined ratio of 94% reflects the non cap property volatility of resulted in the non cat property loss ratio for the six points above the comparative quarter.

Moving to investment on the vessel the portfolio remains well positioned as of the quarter and 92% of our portfolio was invested in fixed income of short term investment with an average credit rating of double a minus and then the effective duration of three nine years offer at a high degree of liquidity risk assets, which include our high yield allocation.

The contained within fixed income public equities and limited partnership investment in private equity private credit and real asset strategies represented 10, 9% of our investment portfolio with the increase of 10, 4% at year end, primarily driven by increased valuations.

After tax net investment income of $56 $3 million was up 24% from the comparative quarter with the growing segment, primarily by $16 million of off the tax alternative investment gains, which we've reported on a one quarter lag. The after tax yield on the total portfolio was 3% for the quarter deliberate of very strong eight nine points of our re contribution.

The total for total the portfolio was negative <unk>, 4% for the quarter, reflecting the impact of pricing longer dated benchmark interest rates on the value of our fixed income securities portfolio, which for that offset the continued decline in credit spreads.

The average after tax new money yields of fixed income purchases during the quarter continued to decline of almost one 7% compared with two 2% of in the fourth quarter of two 4% for 2020.

Cash flow of soft with the $170 million of operating cash flow in the quarter, which equates to 16% of net premiums written.

Sorry for the capital of our capital position remains extremely strong with $2 seven fulfillment of GAAP equity, we have built significant financial flexibility with $490 million of cash and investments at the holding company.

Net premiums written to surplus ratio of slightly below our target range of 133 times on a debt to capital ratio was 16, 7% at March 31 <unk>.

Given our strong capital position, we have the financial flexibility to grow the rate 12 out of about 7% to 9% of sustainable growth rate of the spin.

Stable future, if we find attractive opportunities of course of focus will continue to be of a disciplined and profitable growth.

At December 2020 of our board authorized $100 million share repurchase program that allows us to opportunistically buy back shares in the open market. When we gained returns are attractive for our shareholders over the long term for.

During the quarter, we repurchased approximately 53000 shares at an average price of $64 from 49 for a total of $3 4 billion, leaving $96 6 million of remaining capacity under our share repurchase program, we have not repurchased any shares subsequent to quarter end.

I'll finish, let's say of commentary on the updated guidance for 2021 first we now expect the GAAP combined ratio excluding catastrophe losses of 90%. This is an improvement from our prior guidance of 91% and reflects the strong profitability inclusive of the net favorable casualty reserve development in the first quarter our guidance assumes no additional.

Prior to that of the casualty reserve development of.

All of catastrophe loss assumption remains for us for the combined ratio. We are now projected after tax net investment income of 195 billion, including $31 million in after tax gains from our alternative the divestments. This is up from our prior guidance of $182 million and principally reflects the increase in net investment income from alternatives.

We continue to expect the overall effective tax rate of approximately 25%, which includes an effective tax rate of 19% for net investment income in 2001 percentage of total other items and weighted average shares per day $65 billion on the diluted basis.

With that I'll turn the call back over to John.

Thanks, Mark I'd like to highlight some of our major areas of strategic focus as we move through 2021.

We continue to execute on our plans to generate profitable growth ex significantly outperforms commercial lines of industry results. Our solid capital position provides us with the flexibility to of Berry evaluate various growth opportunities and focus is on those that enhance our market position with our customers and distribution partners, while generating attractive.

<unk> for our shareholders.

We continue to identify ways to bring additional value to our various stakeholders to further build the franchise and is positioned for long term strategic and financial outperformance of the major drivers of our organic growth strategy in commercial lines, our increasing share of our distribution partners overall premium the 12% appointing new.

The partners to achieve a 25% agent market share and expanding into new states.

As we've been highlighting on recent calls we continue to investment tools and technology that enhance our market position with our agents for market match tool, which provides our distribution partners with insights into our overall portfolio and identified opportunities for them to grow their business with us and has now been rolled out to approximately 300 of our distribution partners.

And we expect the increases to 400 by year end.

Tool has seen strong acceptance of our partners, who are often eager to consolidate their business with fewer carriers that can offer superior service and offerings, while optimizing your overall relationship.

We rolled out our new small business platform for BOP products for all agents in the fourth quarter of 2020, the significantly streamline of quoting an issuance process for these accounts and experienced a strong increase in BOP small business submissions since the rollout during.

During the first quarter, we expanded the platform to include coverages, such as general liability and bundled into the marine for small contractors with additional products and a broader rollout planned for the remainder of the year.

In personal lines, we are on track for the third quarter launch of our homeowners product targeting the mass affluent market of customer base that places greater importance on coverage and service.

Later this year, we plan to launch coverage enhancements to our auto of product designed to better serve this customer segment. We are already seeing some positive momentum in our mix of business prior to the official launch.

We saw solid growth in our E&S segment during the first quarter and expect improving performance moving forward as we continue to rollout our new agency automation platform that will further enhance our competitive position.

As we look for the remainder of 2021 I remain extremely confident about our unique market position and strategy, we have the tools talent capabilities and distribution partnerships in place the position US for continued excellent performance, we have demonstrated over the past seven years, our ability to leverage these capabilities to generate consistent Doug.

The digit ROE while.

Couple of growing the business at a healthy rate.

With that we'll open the call up for questions operator.

Thank you. Thank you we will now begin the question and answer session. At this time to all our participants if you would like to ask the question. Please press star followed by number one.

Please mute your phone a recorder named clarity when from tick because of her name is required to introduce of your question.

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Speakers will just give a few seconds to all participants to queue up for questions.

Speakers for me to have questions in queue allow me one second to get day for me. Thank you.

Speakers. Our first question is coming from the line of Matt <unk> from JMP, Matt Your line is open.

Hey, Thanks, good morning.

Good morning.

Just a couple of questions on.

Standard commercial Mark.

I always struggle to keep up the speak fast.

I'll leave you split out.

The the audit premium COVID-19 related headwinds the $75 million.

Costs, I think I caught $29 million in workers' comp, maybe I'm, making that up.

Net crop I'm, assuming GL is the other piece of it is that is that correct for those of the buckets.

Have you Frac the pad it was 29 million for the workers compensation in Q1 2020.

And the $46 million and general liability in Q1 2020 for the total of $75 I just wanted to provide those because of the growth rate for those lines of business look for the other stages of our comparative quarter heat out adjusted for that.

Yeah, perfect and then yes. So following on that I mean, if we adjust.

Particularly workers' comp.

For that it was a pretty nice acceleration in growth even adjusted for that.

Can you talk a little bit about what's going on there the just the return to better work activity.

So is it more kind of payrolls on your existing accounts or is it more new business.

The pushing that.

Yes, Matt This is John I'll take that so I think <unk> got a few things happening there and part of it is price related more so for general liability of than it is for workers comp where pricing is still relatively flat and we also see exposure starting to improve so we saw an all lines basis and I'm not breaking out specifically the individual.

Lines, but on all lines basis in commercial lines in Q1, our exposure was up just under one 5%. So I think that's the other part of it and then you add to that about 100 basis point of increase in retention rates and those are all contributing to growth new business was relatively flat overall.

And again mixed matters in terms of the segments that we write and I think we saw a little bit stronger growth in the quarter and manufacturing of little bit flatter and contract for you. So some of that I'll also of push around your individual lines of little bit, but I would say those are the major drivers strong retention of little bit of a bump up in exposure on your renewable portfolio.

And so price working through there.

Okay, Great and then just one other modeling question the.

The $16 million of cats in that segment.

Do you have the buckets the.

I'm, assuming the bulk was commercial property, but maybe some fell on the BOP and commercial auto.

Yes, just give us the second test to get to that most charters.

Commercial property, but I can kind of break that out of <unk>.

Of the 60 call it six to $8 1 billion of cash and.

The standard commercial lines in Q1, 13, seven came out of commercial property.

And then the balance came out of Bob wishes to.

To the little bit of commercial order, but it was approximately 200000.

Those are the three.

The breakout of the cash into the freight at the lines of business.

Okay perfect well. Thank you that's all I got congrats on the nice start for the year.

Alright, Thank you Matt.

Thank you speakers. Our next question is coming from the line of mirrors Shields Meyer. Your line is open from <unk>. Please go ahead.

Great. Thanks, John.

Gentlemen, I'm trying to understand some of the marketplace dynamics and the impact on on your expectations.

Basically the premise is that we're seeing true.

<unk> retention rate on smaller accounts declined.

And I'm wondering is that influencing growth and is there a different from the quality of accounts.

You're right when you win them from bigger competitors compared to what you went from smaller competitors.

Sure.

Yeah. So first of all of tough questions the answer.

I'll hit the second one first which was relative to where the where the competitor that the business was prior prior lease of primarily written.

Don't necessarily see the difference there in terms of expected performance because we look very closely each quarter at what our new business pricing is relative to target by previous insurer. So we know of the business is coming from we know where it is by class and what our pricing deviation is against each of those competitors.

Let me kind of a fairly low level of detail and I would say there is no difference in the pricing we need to win accounts from a larger company then from the smaller company. So there's nothing out of CVR that would suggest that the profitability of expectation going forward would be any different with.

With regards to your first the first part of your question Hey, guys.

I can't speak for travelers.

A great competitor in the marketplace, but on the on the small commercial side for US we pride ourselves on driving retention higher because of our book of business is so strong and we focus really on two areas one of which is being as granular as possible and how we manage our pricing strategy. That's why we.

We disclose each quarter, what our pricing is for that where we expect to be the best cohorts versus those that we think need a little bit more price and the relative retentions on both and I think thats an important consideration for the other part of this is and I know we continue to point to this but the track record over 10 years of managing <unk>.

<unk> on a consistent basis relative to expected loss trends allows us to be of very consistent player in the market for our distribution partners. So youre not getting that big rate movement from one year to the next which causes the fair amount of disruption.

And then the final point that I'll make and I. This is not relative to any individual competitor or books of business are different in terms of what we write and I think if you look at our small business makeup.

It does tend to be a little bit less focused on small retail restaurants. Some of the most heavily impacted accounts from a pandemic perspective, and I think that has probably helped our because of its more contractors focus has probably helped our retention is holding up a little bit stronger than some that might have a slightly different.

Mix of business.

Okay, that's very very helpful.

The second question.

Assuming and this is maybe my words not yours, the assuming that we have sort of unprecedented audit premiums coming over the next 12 months are there any G&A expenses associated with that.

Yes.

G&A per se, but you would have the commission associated with it so it doesn't come through it will come through on our written and earned basis, but what we would have the associated commission associated with it but not necessarily incremental G&A.

Yes.

Part of it is because of that premium does bring weighted exposure. So from a loss ratio perspective, I don't know that I would anticipate that there is a big uplift in profitability and again I realize companies will try to parse exposure of that acts like rate versus exposure of it doesn't act like rate and that could get challenging.

When you are adding a vehicle that's exposure to AG, obviously brings with it additional losses, if youre payrolls are driving exposure increased by your number of employees are staying stable youre still getting some additional exposure there because you of indemnity costs are going to go higher on a relative basis, but I also want to make sure I mean, we were very.

Careful in terms of taking the action on our own of premium accrual that we thought was appropriate. So we carried on our premium reserve, we felt an obligation to reasonably estimate that amount we did in.

We recorded that and it really allowed us to manage the change in exposure a lot more proactively I don't know that I would necessarily anticipate some massive rise and exposure for companies. That's just going to be driven by a bounce back in the economy because for the most part you've got current certainly comp and GL.

Are influenced by an audit premium and exposure change when you've got a lot of other non auditable lines, whether it's for business owners in line or the property line and again property line will be influenced.

Building values go higher and you've got some inflationary adjustments built in there, but im not sure youre going to see this massive bounce back and exposure come through and positively influence some companies in terms of profitability.

Yes, that's very helpful.

Really looking for the thoughts on the expense ratio, but that was tremendously informative. Thank you.

Thank you Mark.

Thank you.

So all participants over the phone if you would like to ask the question. Please press star followed the number one.

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Our next question is coming from the line of Scott <unk> from RBC capital markets.

Your line is open. Please go ahead.

Yes, good morning.

Morning, everyone.

Just had a.

For you here. The first just wondering if you could touch a little bit on.

Yes, the frequency versus severity of kind of across a couple of the major line yes.

Yes.

Imagine obviously the frequency part of it is pretty favorable right now given where the economy has been in the past few quarters and we've seen that across a number of companies, but I'm wondering if you could talk about the.

The severity of part of it as well, particularly in workers' comp GL and commercial auto we've heard.

Particularly in commercial auto workers accomplish your few companies talking about.

Some increases in severity, even though the frequency is down and I'm just wondering what youre seeing in your book and some of those key lines.

Yes, I think this is John I think what we're seeing is fairly similar but I wouldn't suggest that the severity is that much different from expected and certainly isn't to a level, where it's where it's overcoming the frequencies that are generally come in better than expected and again I want to put this in context of are the.

The approach, we've always taken which is youre talking about evaluating the actual severities versus expected severity is looking back at your more recent prior accident years. So the question is why don't you have embedded in there and I think the fact that we have routinely included in it.

And increasing expected loss trend in those loss picks has allowed us to absorb what might be a little bit of movement from of severity perspective, but I would say generally speaking youre spot on with regard to the genomic Tom which is frequencies have run much better than expected severities have emerged a little bit worse than expected although.

Not enough to overcome that that improvement in frequency I think all of its been a little bit different and I think we've cited this pretty consistently which has been more of a frequency driven at least for US looking back is more of a frequency driven impact that's impacted those prior loss ratios lessor of severity.

But again. These are these are things you want to monitor going forward I think it's very hard to comment at this point on the most recent accident years, certainly 2020 with the immaturity of that book and the fact that frequencies did perform much better than expected. We've highlighted the uncertainties around severity, but just a quarter out from year end it's.

Really hard to put any credence in what we're seeing in terms of incurred severity.

Okay. That's helpful that makes sense.

And then just.

I Wonder if you could give a little more detail on the reserve of leases I know you mentioned for our commercial lines you mentioned.

2018 and previous accident years.

This is the highest level of releases, we've seen in a while and I'm, assuming it's in workers' comp and GL, mostly so if you could comment on that as well as the E&S line, which.

Releases for the first time in <unk>.

A long time and I'm wondering if you can just give a little more detail on some.

Some of those areas.

So Scott this is Bob why don't I start and John can jump in as well so youre absolutely right.

The net favorable casualty reserve development was pretty significant in the first quarter of 35 billion of four eight points of benefit of the combined ratio.

$70 million of that as I mentioned lift in standard commercial lines.

The <unk> 15 of that in Egypt Workers' compensation and general liability and then for the first time, we did see favorable claims of oceans that within the E&S. So that was five billing for the 75 billion in total as I mentioned in my prepared comments. It was really 2018 of price and if you were to break that up just providing a little bit.

More specificity of about 13 came out of the 18 year.

<unk> added 17 for out of 16.

Two out of 15 of that that's the majority of of $30 million of the $75 million at ex what we where we essentially consolidated for April claims of <unk>, which we responded to in the quarter.

So I think when you look at it by individual accident years. These are not big numbers coming through on an individual accident year basis, but the other thing for comparative purposes. If you look back over the last couple of years, we did have probably an offsetting movement in commercial auto going the other way of that probably tempered some of the overall reserve release impacts which is not the case.

And as Tom mentioned in his prepared comments, we haven't.

The adjustments to the loss picks for the 2020 years, so it's still a little bit too early to the sponsor.

Trends because of its fruit of the 2020 yet.

Alright perfect.

Last question is just on the renewal pricing it ticked up a little bit in Q1 versus Q4 for me.

The other companies, we've seen of that sort of kind of seen a leveling off for even a slight deceleration in their pricing.

And I'm wondering if you can talk a little bit about I know you mentioned some detail on what youre kind of seeing on pricing, but.

Do you expect that that kind of the trend to continue.

To build as the year of goes on and.

Well the share anything with what Youre seeing in April.

Pricing wise.

So we haven't and don't play out of sharing anything about April on this call and let me just talk a little bit about the market on a go forward basis and I do think Scot I know we've mentioned this in the past the.

Each company's portfolio is different and their line of business mix is different and I still think what we're seeing in the marketplace from a headline price change number is being driven by a lot of the high exposure lines that we don't really play so whether it's Europe professional lines Youre high hazard property your excess limit.

Significant excess limits on more hazardous classes those of the numbers that were really driving the high reported pricing that you saw and I think you probably are starting to see a little bit of tempering, there, but on the smaller and middle market and of the.

The pricing scale when you look at the various surveys I would say, it's been holding pretty steady and at least at the smallest end of the market you've seen some other companies see some sequential improvement in our underlying pricing on a go forward basis similar to what we saw and again I think it's always important to reinforce and I'm not I'm not projecting.

The low rate expectation for the year, but just want to talk about the market dynamics that we think continue to push.

Yes.

In a manner of that suggest rate will remain strong relative to expected loss trends are number one of the low for long interest rate environment and again.

We're pleased with our results, but we also don't get.

Overwhelmed by the fact that we had a strong alternative investment quarter and on the core fixed income for us and everybody else. Your new money rates are still running below of what is what is rolling off of maturities and other disposals. So there is some pressure of that everybody is feeling when a project forward margins and realizing youre going to have to make up for that on the underwriting side.

I touched on in the prepared remarks, the cat and non cash losses, which continue to be elevated for everybody property as a line that everybody recognizes now they need to run at a much lower combined ratio in a normal last year because they are going to have those years like we've seen in the last couple of and magnitude of price into the product you have got a firm.

<unk> reinsurance market that has not gone away from us not just about pricing, but it's also about terms and conditions in certain cases.

<unk> got elevated loss trends and I think thats, an important point and some are talking about it as though it's a new phenomenon over the last couple of years from our perspective, what we would have normally built in several years ago, which is expected loss trend of about three is now running around 4% and thats kind of be made up for in margin and then the final.

Point is while our results of very strong and some of our public peers are also putting up strong results. The broad commercial lines of industry still has work to do in terms of margins and most of <unk>. Our ambassador everybody has got the commercial lines of industry right around 100 combined ratio.

I think that suggests that margin improvement is necessary without these other influences that we think continue to persist.

Yes.

Makes sense and definitely consistent of what we're hearing.

Anyway I appreciate the all the answers to the best of luck.

Thanks, Craig.

Yes.

Thank you for Anthony we don't have any questions in queue, but once again to ask the question. Please press star followed by number one please record your name and the early wins from tip into cancer of the request. Please press star followed by number of Tia.

Speakers at this time of we don't have any questions in queue, so with that of.

Go ahead and turn the call over back for John John. Please go ahead.

Well. Thank you all for your time. This morning, we appreciate your participation and your questions and as always feel free to follow up with ROE on the or Mark with any follow ups. Thank you. Thank you.

Thank you of that concludes today's call. Thank you. So much for all participation you may now.

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