Q2 2021 Selective Insurance Group Inc Earnings Call

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Good day, everyone and welcome.

With selective insurance groups second quarter, 2020, 1 earnings call and this time for opening remarks, and introductions I would like to turn the call over to senior Vice President Investor Relations and Treasurer ROE hand, hi. Thank you you may begin.

And good.

Good morning, everyone.

And good call on our website selective.

And the replay will be available until August 'twenty to 2020.1.

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.

And to discuss our results and business operations and using.

Yeah financial measures that are also included in our annual and quarterly and current reports filed with the U S Securities and Exchange Commission and non-GAAP operating income and non-GAAP operating return on common equity, which we use to analyze trends and operations and believe.

Good day to day and for investors to evaluate our insurance business.

Non-GAAP operating income and net income available to common stockholders, excluding the after tax impact of net realized gains and losses on investments and.

Unrealized gains and losses on equity Securities.

Non-GAAP operating return on common equity is measured and non-GAAP operating income divided.

Make it East Ridge, Carlin and stockholders equity.

We also use 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.

And to our annual and quarterly reports filed with the U S Securities and Exchange Commission, which includes supplemental disclosures related to the COVID-19 pandemic.

Should be aware that selective undertakes no obligation to update or revise any forward looking statements on today's call are the following and members of selected and executive management team John Maccioni.

These resident 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, I'll make some introductory comments on the results and then highlight some of the higher level themes impacting the industry and our company.

Mark and I will discuss our financial results.

And I'll return to provide and update on some of our strategic initiatives that position us for sustained financial and operating outperformance.

We generated excellent financial results from the second quarter, and a 17, 1% annualized non-GAAP operating Roe.

And our underwriting and investment operations were strong contributors.

<unk> so the financial results for the quarter.

For the first half of the year, our annualized non-GAAP operating ROE of 16, 4% was well above our full year operating ROE target of 11%.

Renewing on our strong track record of excellent results.

Similar to the first quarter favorable.

Several prior year casualty reserve development and strong alternative investment income drove the outperformance while underlying underwriting and investment performance are in line with our ROE target for the year.

For the quarter are solid net premiums written growth of 12% after adjusting for the prior year Covid.

And related and personal and commercial auto credits was driven by overall renewal pure price increases averaging 5.1% strong new business growth and stable retention rates.

Our 89, 8 combined ratio for the quarter benefited from moderate catastrophe losses and 2.3 points.

Favorable prior year Casualty reserve development.

The underlying combined ratio of 89% reflects our superior underwriting capabilities and the quality of our book of business.

Net investment income after tax totaled $67 million and the quarter benefited from the exceptional performance from our alternative investment portfolio.

Polio.

While our alternative investments, particularly private equity have generated outsized returns. So far this year, we expect performance to normalize in the coming quarters.

I'd like to highlight a few key themes first our ability to consistently execute on our objectives around profitable growth.

<unk> estimate to our strong distribution partner relationships.

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

We have a unique franchise built on a foundation of customer Centricity and operational excellence.

While economic research.

Surgeons and strong market pricing are positive tailwind that have helped our growth our continued disciplined underwriting and focus on obtaining renewal pure price increases at or above expected loss trends have been equally important.

Our sophisticated underwriting tools provide us with a deeper understanding and the profitability and risk characteristics of our.

Book, and give us confidence to generate higher growth rates when market opportunities arise.

For the first half of the year commercial lines renewal pure price increases average 5.5% new business was up 8% and the renewal retention rate was 85% in line with the year ago period.

For smaller commercial lines accounts with policy premium of less than $10000 renewal pure price increased 4.8% and the first half of the year, while larger accounts and excess of $100000 and premium generated renewal pure price increases of 6.2%.

Across all size cohorts are highest quality.

Alrighty accounts based on future profitability expectations, which constituted 25% of our renewal premiums from the first half of the year produced 3.1% cure rate.

And point of renewal retention of 93%.

Our most challenged accounts comprising 11% of our renewal premium generating 10%.

And pure rate and point of renewal retention of 84%.

Our granular approach to understanding risk and administering the appropriate price has allowed us to maintain strong retention, while generating loss ratio improvement through and improved mix of business.

Second the lower for longer interest rate environment.

Poised to result in a multi year decline and after tax book yields on investment portfolios, resulting in reduced contribution of investment income to Roe.

While alternative investments have been a strong contributor to overall investment performance during the equity market rally over the past decade consistently replicating that level of performance.

And this will be difficult.

Maintaining discipline to deliver higher returns from underwriting and will be increasingly important we are well positioned to do so.

From an investment allocation standpoint, and we intend to remain conservative and maintaining a high quality portfolio and adequate liquidity with a goal towards supporting our underwriting operations.

And strong capital position.

The third key theme as inflation.

Current inflationary pressures on a short tail lines are largely being offset by continued lower than expected loss frequencies on those same lines.

To the extent these inflationary pressures persist they will need to be reflected and forward loss trend ex.

Patients this impact could be exacerbated by severe catastrophe losses that create additional demand surge from building materials and putting greater stress on supply chains and labor shortages.

Medical CPI, a significant driver of workers' compensation loss trend has remained fairly benign.

As Cort continue.

Expect to open and backlogs are addressed we expect social inflation trends to reemerge.

Over the longer term sustained higher than expected inflation would need to be factored into how companies build expected training and turned our loss picks.

Process for which we have always been diligent and transparent.

Our disciplined planning process, along with our 10 year track record of obtaining renewal pure price increases at or above loss trend has us well positioned.

Finally, I'd like to highlight the selective remains and the strongest position and our history from an operating and financial standpoint, we.

We are executing extremely well and our plans to generate.

And consistent and profitable growth.

Our strong capital position provides us with the flexibility to invest and the most attractive opportunities.

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.

Performance and finish with an update on our capital position and guidance for 2021 for the second quarter. We reported excellent net income available to common stockholders per diluted share of $1.98, and non-GAAP operating earnings per share of $1.85.

We reported and annualized ROE of 18, 3% and.

GAAP operating ROE of 17, 1% with meaningful contributions from both our insurance and investment operations.

For the 6 months ended June 30th our annualized non-GAAP operating ROE of 16, 4% is well above our 11% target for the year.

Overall, we are extremely pleased with.

Our performance so far this year.

Consolidated net premiums written for the second quarter increased 15% compared with a year ago or 12% when adjusted for $19.7 million of COVID-19 related premium credits and the prior year period. The primary drivers of our topline growth with strong renewal pure price increases.

Solid retention rates and very strong new business growth and outstanding commercial lines and E&S segment, yes.

Year to day net premiums written have increased 19% or 11% when adjusted for the prior year COVID-19 related premium items.

We reported and extremely strong consolidated combined ratio.

And 9.8% for the second quarter included and the combined ratio of $22.6 million of catastrophe losses were 3.1 points and $17 million of net favorable prior year casualty reserve development or 2.3 points on an underlying basis or excluding catastrophes and prior year Casualty reserve development.

The combined ratio was 89% and the quarter for.

For the first half of the year, we reported a combined ratio of 89, 5% and and underlying combined ratio of 89, 4%.

And our year to date underlying combined ratio of 89, 4% compared favorably to our initial 2021 guidance of <unk> 91.

<unk> underlying combined ratio.

And reflects better than expected non cat property losses, and a lower than expected expense ratio for the first half of the year.

Moving to expenses our expense ratio was 32, 7% from the second quarter.

Compared with 34, 3% from the prior year period.

A year ago expense ratio included 2.2 points of specific COVID-19 related items, including the provision for bad debts and the earned impact of the COVID-19 related order of premium accrual audit premium accrual.

Year to day, our expense ratio of 32, 4% reflects lower than expected travel and entertainment.

Overhead and general and administrative expenses.

We expect some of these expenses to start reverting to more normal levels and the second half of the year, putting some upward pressure on expense ratio. However, we continue to expect ongoing improvements to our expense ratio over the next 2 year period.

Corporate expenses, which are principally.

Holding company costs, and long term stock compensation totaled $9.1 million and the quarter compared to $6.3 million a year ago. The.

And the increase was driven by strong performance relative to update group as well as an increase and our stock price both of which impacted the variable component of our long term incentive based compensation plan.

The components of our segments for the second quarter and standard commercial lines net premiums written increased 16% or 13% when adjusted for the year ago, $15.4 million of COVID-19 related commercial auto premium credits draw.

Driving sustained and commercial lines net premiums written growth for the second quarter included excellent new Biz.

Business growth of 17% stable retention of 85% of renewal pure price increases averaging 5.5%.

Exposure growth from revised economic activity was also a factor for.

For the first 6 months net premiums written increased 22% or 13% when adjusted for the prior year COVID-19 delay.

Related items.

The commercial lines combined ratio was a profitable 88, 7% for the second quarter included 1.9 points of catastrophe losses, and 2.5 points of net favorable prior year Casualty reserve development.

And the favorable prior year reserve development consisted of $5 million per workers' compensation.

And 10 million for general liability relating to lower than expected claims emergence for accident years 2018 and prior.

The underlying combined ratio was a profitable 89, 3%.

And our personal lines segment, we reported flat net premiums threatening although premium was down 5% when adjusted for the year ago for 3.

And of COVID-19 related personal auto premium credits.

Net previous revenue trends reflect continued competitive market conditions, particularly for coastal zone.

Renewal pure price increases average 1.1% for the quarter retention was flat relative to a year ago at 84% and new business was.

And 3% the combined ratio and the quarter was a profitable and 92, 3% and the underlying combined ratio was a profitable 85, 5% and all.

<unk> segment, we reported 23% net premiums written growth for the quarter relative to a year ago.

Renewal pure price increases average 6.9% new business was.

Down a strong 19% and retention increase the.

And the combined ratio for the segment was 96, 6% and the quarter driven by catastrophe losses, equating to 9.5 points, which was partially offset by 3 points of net prior year casualty favorable reserve development. The underlying combined ratio was a profitable 90.

And 1%.

Moving to investments our investment portfolio remains well positioned as of quarter and 91% of our portfolio was invested in fixed income and short term investments with an average credit rating of a plus and effective duration of 3.9 years and offering a high degree of liquidity.

As we.

We have been preemptive on recent calls the decline and the average credit rating of our fixed maturity portfolio to a plus and the quarter from double a minus reflects the meaningful reduction and offset to allocation to agency MBS over the past year as lower interest rates have accelerated prepayments as we had expected.

Given the low.

Very low reinvestment rates for this asset class, we have reallocated. These non sales disposal cash flows into other high quality fixed income sectors, including corporate bonds and other ABS classes that do not carry a AAA rating, but and our view currently offer a better risk and return profile.

Risk assets, which include.

Our high yield allocation contained within fixed income public equities and limited partnership investments and private equity private credit and real asset strategies represent 11, 6% of our investment portfolio the.

And the increase and our risk asset to 11, 6% from 10, 4% at year end was primarily driven by.

Hi evaluations.

For the quarter after tax net investment income of $67.4 million was up $38.9 million from the year ago period, primarily driven by $24 million of after tax alternative investment gains compared to $13 million of after tax alternative investment losses, and the comparative quarter.

As a reminder, net investment income from alternative investments as reported on a 1 quarter lag.

The after tax yield on the total portfolio was 3.5% per the quarter delivering a very strong 10.3 points of ROE contribution the after tax yield on the fixed income securities portfolio was 2.6% and the second quarter, which was.

Slightly down from 2.7% and a year ago period.

The total return and the portfolio was 1.9% for the quarter, reflecting the strong alternative asset performance as well as the slight pullback and longer dated benchmark interest rates and a tightening of credit spreads, which increase the value of our fixed income securities. The.

Average after tax new money yields and fixed income purchases during the quarter was $1.8 8% compared with 2.7% per the year ago period strong operating cash flow of 292 billion for the first half of the year equated to 18% of net premiums written.

Turning to capital our capital position remains extremely strong.

<unk> with $2.9 billion of GAAP equity book.

Look value per share increased 6% during the first half of the year to $44.78.

Benefiting from our strong earnings.

We have built significant financial flexibility with $505 million of cash and investments at the holding company on.

Our net premiums written to surplus ratio is.

Below our target range of $1.3 3 times.

Debt to capital ratio was 16% and at June 30th.

And given our strong capital position, we have the financial flexibility to growth at rates, well above up 7% and 9% sustainable growth rate for the foreseeable future.

I think we continue to find attractive opportunities.

We did not repurchase any shares during the second quarter of subsequent to the quarter and under $100 million share repurchase program. During the first 6 months of the year, we repurchased approximately 53000 shares and an average price of $64.49 per totaled $3.4 million, we still have available 96.

$6 million of remaining capacity under our share repurchase program, which we plan to use opportunistically.

I'll finish with some commentary on our updated outlook for 2021, we now expect the GAAP combined ratio excluding catastrophe losses of 89%. This is an improvement from our prior guidance of 90%.

<unk> and reflects strong profitability inclusive of net favorable casualty reserve development and the first half of the year.

Guidance assumes no additional prior accident year casualty reserve development on.

And ill catastrophe loss assumption remains full points on the combined ratio.

We are now projecting after tax net investment income of 200.

Great and $20 million, including $55 million and after tax gains from our alternative investments. This is up from our prior guidance of $195 million and $31 million, respectively, and principally reflects increased year to day as well as expected after tax net investment income from our alternative investments.

We continue to expect and overall effective tax rate of approximately 25%, which includes and effective tax rate of 19% for net investment income and 21% for all other items and <unk>.

Just average shares from a $65 million on a diluted basis.

In summary, we're off to a very strong skull and from 2020.

We are pleased with our year to date growth rate of 19% or 11% after adjusting philosophy as COVID-19 items and up 16, 4% year to date and operating ROE.

While our reported results reflect some non recurring benefits such as high and unexpected alternative investment income lower than expected cash and favorable.

And we'll reserve development our underlying results are strong we are well positioned to continue and to continue delivering superior financial results and strong returns and to our shareholders over the long term.

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

Thanks, Mark and we continue to execute on our objective of generating consistent and.

1 of our growth by identifying ways to bring additional value to our customers and our distribution partners. Our long term goal and commercial lines and to increase our market share and a 3% which is predicated on increasing our share of our distribution partners overall premiums and 12% and appointing new distribution distribution partners to achieving.

And profit, 25% and agent market share.

We seek to augment these initiatives by expanding into new states.

Let me highlight some of our ongoing strategic initiatives the rollout of our market and Max tool, which provides our distribution partners with insights into their overall portfolio and identified targeted accounts to grow their business with us.

<unk> continues to progress well.

Mark and <unk> currently been deployed and approximately 320 of our distribution partners and is targeted to grow to over 400 by year end.

The tool is seeing strong acceptance and modern distribution partners and it has been a key contributor to our strong admissions growth over the past year, we are still just beginning.

Beginning to realize the full value of this investment.

Our updated small business platform continues to rollout successfully.

Our business owners general liability automobile umbrella and cyber lines for eligible small business customers are now available on our new platform, we significantly streamline according and issuance process for eligible accounts.

And are experiencing a strong increase and small business submission since the rollout.

<unk> line of business, which became available to our agents and the new platform and the fourth quarter of 2020, So new business premium increased from that line by more and a 20%.

And personal lines, we successfully launched our homeowners product.

<unk> changes targeting the mass affluent market at the end of June this.

And this customer base tends to place greater value on coverage and service and as such is less price sensitive.

Our agents have responded favorably and have already begun submitting more of this business later this year and plan to launch coverage enhancements to our auto product designed to.

<unk> share of this customer segment.

We saw solid growth and our Es segment during the second quarter and expect continued strong performance moving forward as we continue to rollout our new agency automation platform that will further enhance our competitive position.

Our focus within E&S remains small lower hazard accounts. This segment continues.

Continues to benefit from higher pricing and increased deal flow into the non admitted space.

I also want to highlight our recently published environmental social and governance report driving sustainable impact, which lays out how ESG values are embedded in the way, we do business and integral to the execution of our long term priorities.

These include understanding and attempting to mitigate the impact of climate change per.

Abiding customers with responsive claim services and risk mitigation solutions and developing a highly engaged team of employees and leaders enhancing diversity equity and inclusion and a big part of creating and engaged culture that celebrates creativity.

Innovation and idea generation and we seek to increase diversity at all levels and the organization.

By acting and the interest and providing value to all our stakeholders, we will serve the interest of our shareholders by generating sustained financial outperformance.

As we look to the remainder of 2021.

<unk> 3 and we're pleased with our market position and superior ability to execute and I'm confident that we can continue to build on our long term track record and performance that meets or exceeds our ROE targets with that we'll open the call up for questions operator.

Thank you and we will now begin the question and answer session.

And so all participants if you would like to ask questions. Please press star followed by the number 1 and please on mute your phone and record your name and company name clearly when from that your name and company name is required to introduce your question Chuck and Sylvia requests from your press the star followed by the number 2 speakers.

Speakers.

We have a 2 questions or 3 questions in queue. Our first question comes from Matt Carl that day from J P. M. C. Your line is now open you May proceed.

Well, thanks, and good morning.

John I appreciated your comments on Uninflated and and.

If my read of his day.

And with respect for it.

My question is.

Whats your view of the industry from kind of twofold..1 is do you think others and the industry are kind of <unk>.

And the inflation that we're seeing seriously or do you think some people are trading and more transitory and then.

Hello onto that as you know.

And what impact do you think it'll have on the longevity and the pricing cycle.

Yes, Thanks, Matt a great question and try and I always hesitate to comment too much on the industry and.

Certainly have read the comments and responses to the questions from a number of peers, who have reported to this point and they.

And the 5 different perspectives, and I think we'll I'll confidently state that they've got it factored and incentive our loss picks and factored into reserves I can only speak to the discipline with which we have always managed loss trends and earn pure rate to offset loss trend and our own portfolio and and discipline.

And when we've had around that because I think the important part to understand is inflation doesn't just manifest itself and expected loss trend on a go forward basis inflation will also manifest itself in some ways and your actual historical loss trend versus what you expected and as you know looking back over at least a decade.

And not just disciplined around that but highly transparent to our shareholders and the investor community in terms of how we view loss trend and.

And pure rate renewal pure rate and our loss picks. So that's the first point I would make I can't speak to whether other companies take the same approach that we.

But we maintain discipline on that and then when you think about inflation and the impact on frequency and severity I think it's important to put it in context, and clearly for everybody and the industry right now evaluating and frequency and severity trends is complicated by a few different factors and obviously, 1 is social inflation and social inflation is 1.

And while it'll impact your future loss trend expectations is also going to be seen and your historical loss trends and so when you look back of those prior accident years, what is actual change and frequency and severity versus what you thought it was and is that manifesting itself and higher average severity is manifesting itself and.

And rates of litigation.

And then how do you respond to that and how does that influence your pic for the upcoming year. So thats. The first exceptional impact second exceptional impact, which a lot of time has been spent on it is COVID-19, and I think theres clearly been a lot of focus around the drop and frequency and 2020 and how that has continued into 2020.

Higher, albeit at a lower pace, but also the offsetting impact and in some cases, partially and maybe more so of some increasing severity than it was gone along with that and that.

There's another exceptional factor that needs to be factored into our companies evaluate and then the third and more and more immediate and as the economic inflation that everybody.

And you're seeing although when you break down the component parts of the CPI and realize that it's largely driven by lumber and used cars are the big outlier, so low and you've seen a little bit of upward pressure and other areas. So theres a number of different pieces. There I think the most immediate 1 and again from our perspective. This is always and our line of sight. It's.

1 and factored into how we evaluate loss trends and how we update loss trend assumptions, but in terms of the more immediate economic inflation I think you always want to keep that in context, and when you think about auto physical damage and the severity impact on net.

That particular sub line of business severities had been on the rise and auto Phys dam.

For the industry for a while and previously it was driven by the increased cost of repairing vehicles because of more technology and the vehicles and.

And then when you think about the impact of used cars and it's largely on total losses and total losses are a portion and not not the overwhelming portion of loss dollars and auto Phys dam, but you also wanted to think about.

Always a short term impact of severity and the context of lower frequency. So that's the first point and then with regards to lumber and and my apologies for going out a little bit longer but there is a complicated answer to your question with regards to lumber I think it is importantly also keep that in context. So clearly that is now manifesting itself.

And average severity and let me talk about home first and then the homeowners line lumber is going to have a bigger impact than it is and commercial lines.

And 1 where it's just a small portion of the last dollar and when you think about the other big piece, the big driver and CPI relative to home, it's going to be dry wall drive only went up about 10% and the same time.

Time periods. So when you put all the pieces together for us.

Personal per home, let's say the construction cost index is up about 17% and then remember that about 20% of the average last dollar is for non building related items extra expense and contents and those sort of things. So it's in there, but it's not as bad as the headline would suggest and.

So at least for us when you look at our frequency relative to non cat property that continues to run a little bit lower than anticipated and so there's an offset there and then on the commercial property side. The actual construction cost index is probably closer to 5% and you've got about 40% of the loss sellers and commercial properties.

And that are not building related.

And have puts and important context around how the headline numbers work their way through.

All that said property is still alive and the industry that is running combined ratios well above its risk adjusted target that's aligned that you'd never want to look at it and on an ex cat basis, you want to look at it on a normalized.

And all cap basis, and the other area of discipline that we have and I can't speak to others is with regards to insurance to value. So we are constantly updating our coverage a values on the home side and are building values on the property side with an eye towards inflationary cost and those get factored in.

Lifestyle, you to stay upfront.

In terms of times of normal inflation, and so we're not going to prognosticate. If this is transitory and not transitory and really focus more on the diligence and the process. We've always had around embedding loss cost changes into our loss picks.

That's great. Thank you very insightful.

And really helpful.

A quick quick follow up just the numbers answer and probably for Mark.

Cat losses and standard commercial.

You have those by line and I think you've given them and the path between property and commercial auto and Bob.

Sure, Matt so in the quarter and standard commercial lines that catastrophe losses were 11.

$3 million or 1.9 percentage points on the combined ratio for standard commercial lines, and that's really spread across 3 lines of business within commercial property, it's $9.2 million and commercial auto it's about 500000 and and the bottom line. It's 1.6 million per total.

11, 3 or gamble 9 points from the combined ratio.

Alright, great. Thank you for the answers and congrats on a really nice margin here.

Thank you.

Thank you Matt. Our next question comes from Paul Newsome from Piper Sandler. Your line is now open you May proceed.

And good morning, congratulations and the court.

And then I wonder just kind of a big picture question.

And you're getting rate above what you see.

Knock on wood the claims inflation is.

What factors should we consider that might keep them from.

And underlying.

Underwriting margin expansion in 2022 versus 21.

And just maybe you could think about the pieces that we should be thinking about that.

And that might offset or change that and.

Embedded underwriting.

Yeah, So Paul.

Question, I, do think and park and ties back to the discussion, we just had relative to loss trend and the impact on loss trends and we've tried to stress this and I know it gets complicated, but when you think about a forward loss picks and I'll think about 'twenty, 1 and to 'twenty 2.

Not just about what is the impact of expense.

Expected loss trend and 1 of them.

Impact of expected rate and rate that certainly influences your loss pick for the upcoming year, but the equal influence at least for those of US who have a fairly disciplined and rigorous process around it is looking back over the last 5 accident years, and saying, okay, how with each passing quarter.

And as my actual frequency and severity emerge that's your historical loss trend. So when you look back and bring all of those prior accident years to a fully trended basis based on actual changes in frequency and severity and then bring them to present rates. So what was my earn rate and each of those years, that's your starting point.

And that starting point.

Could be influenced by social inflation, so to the extent social inflation and hit the prior accident years, and therefore your loss trend and those years as emerging a little worse than expected either driven by frequency or severity that is influencing up the pick people from your upcoming year before you.

<unk> from expected future trends and expected written rate and I think that's the 1 piece that we are certainly diligent about and.

And Fortunately for us when we look back.

The actual trends have been fairly stable with what we've embedded in there and we've been earning rate at a very consistent basis.

To offset that trend for everybody and the industry that will be a big influence when they do their planning for 2022 on the casualty lines and I think that's the 1 area and I'm not prognosticating for us or anybody else, but that is the 1 I would say unknown or the information you would probably would not have from a lot.

And <unk> when do you think about rolling forward from this year to next.

Okay. That's my only question appreciate it thank you.

Thank you Paul.

Paul Our next question comes from James Bass from K B W. Your line is now open you May proceed.

Thank you and good morning.

So I was just wondering on the on the pricing.

Can you give us an idea of your outlook for your trajectory for pricing on the commercial side I know that it's 5%.

5.1% and that was 5.7% last quarter can you give us a sense.

Out of that.

Is that accelerating or kind of where do you see rate increases going from here.

Yes, so I mean, obviously, if you look at our performance over the first 2 quarters, it's been relatively stable and while the market dynamic is and influence on how we manage pricing. We also have taken a very.

<unk>.

And measured approach in terms of understanding our own pricing targets based on our starting point profitability and our expectation expectation of trend and we're going to manage rate and that contracts as of course, and just trying to maximize rate and the short term because the market and may or may not be conducive and I guess, what I would point you to.

Sense of how we think about this going forward and why we think the current pricing environment and a sustainable is what's driving the pricing environment and whether those forces continue to be present, when we look forward and we would argue that they are so let me just hit the key ones. So number 1 is the low interest rate environment.

And what we all know where that is and I think as we tried to point out and our prepared comments. We think we've got a high quality alternative investment portfolio and thats been generating really strong returns for us we realize that that is to a certain extent per and the entire industry is masking the pressure on the core fixed income portfolios and when.

When you roll forward the investment income impact from those declining yields and that is something that will put pressure on underwriting margins and the sector.

And what pieces when you think about and.

Number of companies, we would not us but other companies have continued to point to a little bit more volatility and their non cat losses and the more recent quarters.

And back over the last couple of years, you've seen higher and elevated and more volatile cat and non cat property, you've got firming reinsurance pricing and while and maybe disappointing for the reinsurers in terms of where they are relative to where they expect it to be from a pricing perspective prices are still up and that has to be factored in and then loss trend.

Trends with and without additional inflation continue to be a pressure point and as we pointed to the social and inflation trainees that were emerging and included in our.

Loss reserve estimates and our loss picks pre pandemic, we fully expect to reemerge as the economy reopens everybody is dealing with.

And those same drivers and we think that crops up the pricing environment now the other.

<unk>.

And when you put it all together and think about it is the starting margin for most of the industry needs improvement and I realize we're everybody's reported really strong results we tend to focus.

Just on the underlying non.

And not ex cat underlying with a normal cat load when you're thinking about the starting point and when you look at that for many companies and the industry and the industry broadly and Theres some loss ratio improvements still necessary and then the final point I would make would be a lot of the back down and the last couple of.

Quarters, and the headline rate number for the industry has been driven by the lines that were really high in terms of rate level. So think high hazard excess umbrella specialty lines D&O EPL management liability, that's what's bringing the overall number down, but I think you've seen a little bit more stability and commercial and.

General liability and commercial property and the lines that make up our portfolio.

Perfect.

And then just.

And you mentioned some I think Mark mentioned some expense ratio improvement outside of the cash.

Emperor Covid savings can you comment on.

Sort of map out what the expense savings and strategies are moving forward.

Yes, certainly so when we went into 2020, 1 we put forth our expectations for the full year.

The combined ratio, which was 91% underlying combined ratio and and embedded within that guidance we.

And that about about 40 basis points of expense ratio improvement and that was off and adjusted 2020 expense ratio as you know 2020 at a number of COVID-19 items.

It was 33.8 on a reported basis, but adjusted for the pluses and minuses. It was really a fairly straightforward.

Took patient going into 2021 was for 33 expense ratio.

80 basis points of actual improvement or 40 on an underlying basis.

Today, we're at 32.4.

And at 60 basis points.

Points of improvement versus expectations and <unk>.

A couple of.

Expert there it really is our travel and entertainment.

Expected <unk> to be a little bit lower than expected and the first half of the year and the run rate, but it's actually come in less than expected and then we have just some overall general and overhead items that have come in below expected and that includes things like rent station.

Stationery supplies.

Drive insulting fees audit fees and things like that that's benefit and the expense ratio.

We expect some of those items to perhaps revert back to more normal levels, and maybe a little bit of upward pressure on the expense ratio getting this back to more and they expected level for the full year 2021, but going into 2022 and into.

Into 2023, we do have a plan in place and line of sight and a.

Call it 2 continuing to be more efficient as a company.

And that will be reflected in and.

And expense ratio that we expect to be able to bring down we've talked and the polished about.

And appropriate expense ratio.

<unk> top companies for our mix of business as we stand today of around 32, and we think that is.

A powerful way to get that by the end of next year going into 2023, So that's sort of how we're thinking about the overall expense ratio.

Thank you that Guy was it from me.

Thank you James Our next question comes from Grace harder from Bank of America. Your line is now open you May proceed.

Hi.

And I have felt.

And the recent increases in severity and personal lines.

I'm wondering where the pricing outlook is today versus.

When you all originally started thinking about the transition towards and that that point book.

And as we kind of wait and see how these.

Sure and severity trends play out if there is any impact on your growth appetite are they expected.

Of the rollout or uptake.

And in the meantime, thank you.

Yes sure.

I don't know that our our view has changed at all I mean honestly when you look at what we're seeing and our own portfolio and again, we've always talked about the frequency drop and auto and it was certainly higher on the personal side and it wasn't on a commercial side, but even to tick up and severity offsetting that was.

And I am more pronounced on the commercial auto side, and I wasn't and personal auto side. So I don't we don't have anything and our data, suggesting that there has been a significant shift from a severity perspective and personal auto with regard to the pricing environment.

And I'm actually surprised that and pricing actions.

A lot of dramatic as they were in the middle of Covid, so rather than providing.

And the auto credits that were deemed to be appropriate the notion of significantly adjusted your base rate on a go forward basis, assuming some permanent shift and frequency and severity I think it's worth caught some of the market participants short.

And we didn't do that we kept our auto pricing relatively flat and and hurt our competitive position and the near term I think <unk> our expectation is net.

The more recent results now are starting to put some upward pressure on personal auto pricing and we think that will start to make its way through the marketplace, but again, we're moving into a segment.

And that business that we think is not as price sensitive and certainly home is as big of a consideration and that accounts decision, making as oil and is and what we think about it more on a package basis. So.

And that's how we think about the market going forward.

Okay.

Thanks, and then I had a quick 1 on standard commercial.

And we've heard a lot of peers talk about elevated property losses, and the quarter, but if I look at non.

Non-GAAP property losses and also standard.

And they don't.

Particularly out of line with recent quarters Davis, just wondering with Gill from that is.

Or if you sit and if theres anything particular about book to make a puckish book, but help you avoid that.

Our non cat property relative to our own expectations are spending a little bit better than expected from the first half of the year and when you compare it to the prior year last year was or wasn't exceptionally like non cat property.

Sure.

When we think about our normal run rate, we're a little bit better than expected.

And non cat property.

And from a frequency and its frequency driven and I mentioned earlier and the response to the question around inflationary impacts some of those on the property side are impacting severity, a little bit but and our.

Well you know, there's there's an offsetting frequency benefit when you put it all together, we're a little bit better than expected on non cap property.

Thank you.

And.

Thank you Grace or next question comes from Scott Helane, yet from RBC capital markets. Your line is now open you May proceed.

Yes, good morning, most of I.

And as of and answered, but I just had a couple of real quick.

Is there any way you could quantify what the I'm, assuming I think you mentioned it was a benefit but premium audit exposure.

Units is there any way you can quantify what kind of impact that was and the second quarter.

And on growth versus the past few quarters and I would imagine that.

And so that benefit will be kind of and the second half and into next year, but I'm wondering if you are able to talk with a little more on that yes.

And then let me let me try and answer this for you. So generally speaking from our perspective, the best way for us to think about exposure.

And would you change because there are different pieces that will move around and there some companies consider exposure others might not and we just look at the difference between the total premium change on our renewal book and the pure rate change and in the quarter that was about 2.7 points.

And then when you think about that and the overall portfolio.

And that renewal business is about 81% of the premium and the quarter. So I assume a little over 2 points of the growth in the quarter would have been attributable to exposure change.

Okay.

Definitely helpful.

And then I wanted to switch over to the share buybacks you.

We're active and share buybacks in Q1 and <unk> and.

So I wonder if you could just provide a just your your thoughts and your your appetite and how youre thinking about buybacks.

And at current levels and obviously the.

And the market's still attractive and you're writing a lot of business, but I'm just wondering how how buybacks and you know my might be factored in and and come into play as you you'll look for the rest of the year.

Q2, and certainly this is we've put the buyback program in place back in December and as we mentioned and it's an opportunistic share buyback program.

And we're right now seeing very attractive opportunities to grow our business and you've seen the growth rate is significantly above where we've been for the last number of years.

And so for us.

And profitability with generating the capital that were.

Generating the best use of capital, it's just to put it back into the business and.

And grow our core operations, because it's very attractive returns for our shareholders.

When we think about the buyback program is going to.

Be opportunistic we would love to deploy it.

But we'll be patient and judicious.

And look for an opportunity sets and the market to us executing and buyback program and we don't have a budget per se or plan to execute it.

And number 2 a number of quarters it really is opportunity.

To this day.

Okay.

And just last question I had was just on E&S. It sounds like you are you have you had good momentum and premium there and it sounds like you have good momentum going and the second half of the year and you mentioned, a new platform and so if some of this just yet.

Expanding with distribution partners and if you can talk more on that and in terms of obviously, there's a lot more risk going to E&S and then standard but can you can you talk about how much of that is just is kind of organic expansion through through distribution and where you see that playing out into 2022.

Yes.

All right.

And through distributions and we occasionally will add a new distribution partner, but we've just seen a lot more submission activity coming through and the <unk>.

And that's really driving and increase the reference to the automation platform is that we talk a lot and other out of the market participants talk a lot about small business platform enhancements, which.

And we mentioned we're rolling out per E&S, we're rolling out something very similar which is a full quote and bind system for small E&S business, which we think will really enhance our competitive positioning with those wholesalers and that continues to roll out through the balance of this year and into early next year. So we like the position and the.

And the market is benefiting from strong rate and as you saw our rate level, and just under 7% and a quarter and E&S, but also strong submission flow, but at the profile of the business. We're writing is very similar to the profile of our book is that small binding authority business casualty driven it's more contractors habitation all those types.

And accounts.

Alright, Okay I appreciate the answers thanks.

Yes.

Thank you Scott speakers and we did not have any questions and Q. Once again to all participants if you would like to ask a question. Please press star followed by the number 1 and record your name and company.

Marketing clearly went from day to cancel your request. Please press star followed by the number too.

Okay.

Great well. Thank you if there's no further questions. We appreciate all your time this morning, and as always please follow up with Roma and.

Name and additional questions.

Thank you.

Okay.

That concludes today's conference. Thank you everyone for joining you may now disconnect.

[music].

Yeah.

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[music].

Good day, everyone and welcome to selective insurance group's second quarter 2021 earnings call and this time for opening remarks, and introductions I would like to turn the call over to senior Vice President Investor Relations and Treasurer ROE hand, hi, Thank you you may.

And you begin.

And good morning, everyone.

Thanks.

And on our website selective nautical.

And the replay will be available until August 2020 'twenty 1.

A supplemental investor package, which provides GAAP reconciliations of any non-GAAP financial measures referenced today also.

So it is available on the investors page of our website.

Great people and discuss our results and business operations using.

Yeah and financial measures and it also included in our annual quarterly and current report filed with the U S Securities and Exchange Commission and non-GAAP operating income and non-GAAP operating return on common equity.

We use to analyze trends in operations and believe makes it easier for investors to evaluate and insurance business.

Non-GAAP operating income and net income available to common stockholders, excluding the after tax impact of net realized gains and losses on investments and.

And unrealized gains and losses on equity Securities non-GAAP operating return on common.

Which put it as measured and non-GAAP operating income divided by average common stockholders' equity.

We also used statements and projections about our future performance. These forward looking statements under the private Securities Litigation Reform Act of 1995 are not guarantees of future performance and are subject to risks and uncertainties.

And the detail.

From an episode 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 the COVID-19 pandemic.

You should be aware that selective undertakes no obligation to update or revise any forward looking statements on today's call are the following and members of selective.

And it's got good management team, John Marciano, President and Chief Executive Officer, and Maslukov, Chief Financial Officer, now I'll turn the call over to John.

Thank you Ron and good morning all.

Make some introductory comments on the results and and highlight some of the higher level themes impacting the industry and our company.

Mark then will discuss our financial results and I'll return to provide and update on some of our strategic initiatives that position us for sustained financial and operating outperformance.

We generated excellent financial results and the second quarter, and a 17, 1% annualized non-GAAP operating Roe.

Both of our underwriting.

<unk> and investment operations were strong contributors to the financial results for the quarter.

For the first half of the year, our annualized non-GAAP operating ROE of 16, 4% was well above our full year operating ROE target of 11% continue.

Continuing on our strong track record of excellent results.

Similar to the first quarter favorable prior year casualty reserve development and strong alternative investment income drove the outperformance while underlying underwriting and investment performance are in line with our ROE target for the year.

For the quarter, our solid net premiums written growth of 12% after.

Adjusting for the prior year, COVID-19 related personal and commercial auto credits.

And was driven by overall renewal pure price increases averaging 5.1%.

Strong new business growth and stable retention rates.

Our 89, 8 combined ratio from a quarter benefited from moderate catastrophe losses.

And 2.3 points of favorable prior year casualty reserve development.

The underlying combined ratio of 89% reflects our superior underwriting capabilities and the quality of our book of business.

Net investment income after tax totaled $67 million and the quarter benefited from the exceptional performance.

From our alternative investment portfolio.

Alternative investments, particularly private equity have generated outsized returns. So far this year, we expect performance to normalize in the coming quarters.

I'd like to highlight a few key themes first our ability to consistently execute on our objectives around.

And the growth is a testament to our strong distribution partner relationships and sophisticated and granular pricing capabilities underwriting tools and superior customer service and capabilities.

We have a unique franchise built on a foundation of customer Centricity and operational excellence.

While economic resurgence and strong market pricing are positive tailwind that have helped our growth our continued disciplined underwriting and focus on obtaining renewal pure price increases at or above expected loss trends have been equally important.

Our sophisticated underwriting tools provide us with a deeper understanding of the profitability and.

And the risk characteristics of our book and give us confidence to generate higher growth rates when market opportunities arise.

For the first half of the year commercial lines renewal pure price increases average 5.5% <unk>.

New business was up 8% and our renewal retention rate was 85% in line with a year.

<unk> ago period.

For smaller commercial lines accounts with policy premium of less than $10000 renewal pure price increased 4.8% and the first half of the year, while larger accounts and excess of $100000 and premium generated renewal pure price increases of 6.2%.

Across all sites.

And cohorts, our highest quality accounts based on future profitability expectations, which constituted 25% of our renewal premiums from the first half of the year produced 3.1% cure rate and.

And point of renewal retention of 93%.

Our most challenged accounts comprising 11% of our renewal premium.

Generating 10% pure rate and point of renewal retention of 84%.

Our granular approach to understanding risk and administering the appropriate price has allowed us to maintain strong retention, while generating loss ratio improvement through and improved mix of business.

Second the lower.

And our interest rate environment and is poised to result in a multi year decline and after tax book yields on investment portfolios, resulting in reduced contribution of investment income to Roe.

While alternative investments have been a strong contributor to overall investment performance during the equity market rally over the past decade.

<unk> replicate.

Per loading that level of performance will be difficult.

Maintaining discipline to deliver higher returns from underwriting and will be increasingly important we are well positioned to do so.

Hmm and investment allocation standpoint, and we intend to remain conservative and maintaining a high quality portfolio and adequate liquidity with a goal towards supporting our.

Replicating operations and strong capital position.

The third key theme as inflation.

Current inflationary pressures on the short tail lines are largely being offset by continued lower than expected loss frequencies on those same lines.

To the extent these inflationary pressures persist.

And they will need to be reflected.

Under a forward loss trend expectations. This impact could be exacerbated by severe catastrophe losses that create additional demand surge from building materials, putting greater stress on supply chains and labor shortages.

Medical CPI, a significant driver of workers' compensation loss trend has remained fairly benign.

Collected as courts continue to reopen and backlogs are addressed we expect social inflation trends to reemerge.

Over the longer term sustained higher than expected inflation would need to be factored into how companies build expected training and turned our loss picks.

Our process for which we have always been diligent and transparent.

Our disciplined planning process, along with our 10 year track record of obtaining renewal pure price increases at or above loss trend has us well positioned.

Finally, I'd like to highlight the selective remains and the strongest position and our history from an operating and financial standpoint.

We are executing extremely well and our plans to generate.

And consistent and profitable growth.

Our strong capital position provides us with the flexibility to invest and the most attractive opportunities.

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 on our capital position and guidance for 2021 for the second quarter. We reported excellent net income available to common stockholders per diluted share of $1.98, and non-GAAP operating earnings per share of $1.85, we reported and annualized ROE of 18, 3%.

And our non-GAAP operating ROE of 17, 1% with meaningful contributions from both our insurance and investment operations.

For the 6 months ended June 30th our annualized non-GAAP operating ROE of 16, 4% is well above our 11% target for the year.

Overall, we are extremely pleased.

And with our performance so far this year.

Consolidated net premiums written for the second quarter increased 15% compared with a year ago or 12% when adjusted for $19.7 million of COVID-19 related premium credits and the prior year period. The primary drivers of our topline growth with strong renewal pure price increases.

And it's solid retention rates and very strong new business growth and our standard commercial lines and E&S segment, yes.

Year to day net premiums written have increased 19% or 11% when adjusted for the prior year COVID-19 related premium items.

We reported and extremely strong and consolidated combined ratio.

298 per cent for the second quarter <unk>.

Included in the combined ratio of $22.6 million of catastrophe losses were 3.1 points and $17 million of net favorable prior year casualty reserve development or 2.3 points on an underlying basis or excluding catastrophes and prior year Casualty reserve development.

The combined ratio was 89% and the quarter for.

For the first half of the year, we reported a combined ratio of 89, 5% and and underlying combined ratio of 89, 4%.

Our year to date underlying combined ratio of 89, 4% compares favorably to us.

<unk> 2021 guidance of <unk> 91 per.

<unk> underlying combined ratio.

And reflects better than expected non cat property losses, and a lower than expected expense ratio for the first half per year.

Moving to expenses our expense ratio was 32, 7% for the second quarter.

Compared with 34, 3% from the prior year period.

A year ago expense ratio included 2.2 points of specific COVID-19 related items, including the provision for bad debts, and neo and impact of the COVID-19 related order premium accrual order premium accrual.

Year to date, our expense ratio of 32, 4% reflects lower than expected travel and entertainment.

And general and administrative expenses.

We expect some of these expenses to start Revoted to bowl and normal levels and the second half of the year, but and some upward pressure on expense ratio.

However, we continue to expect ongoing improvement to our expense ratio over the next 2 year period.

Corporate expenses, which are principally.

<unk> comprised of holding company costs, and long term stock compensation totaled $9.1 billion and the quarter compared to $6.3 million a year ago.

The increase was driven by strong performance relative to update growth as well as an increased and our stock price both of which impacted the variable component of our long term incentive based compensation plan.

Turning to our segments for the second quarter and standard commercial lines net premiums written increased 16% or 13% when adjusted for the year ago, $15.4 million of COVID-19 related commercial auto premium credits <unk>.

5 of sustained commercial lines net premiums written growth for the second quarter included excellent new.

Business growth of 17% stable retention of 85% of renewal pure price increases averaging 5.5% <unk>.

Exposure growth from our revised economic activity was also a factor.

For the first 6 months net premiums written increased 22% or 13% when adjusted for the prior year COVID-19.

And related items.

The commercial lines combined ratio was a profitable 88, 7% for the second quarter included 1.9 points of catastrophe losses, and 2.5 points of net favorable prior year Casualty reserve development.

Favorable prior year reserve development consisted of $5 million for workers' compensation.

$10 million with general liability relating to load and expected claims emergence and for accident years 2018, and prior and the underlying combined ratio was a profitable 89, 3%.

And our personal lines segment, we reported flat net premiums revenue, although premium was down 5% when adjusted for the year ago $4.

$3 billion of COVID-19 related personal auto premium credits.

Net previous revenue trends reflect continued competitive market conditions, particularly from coastal zone.

Renewal pure price increases average 1.1% for the quarter retention was flat relative to a year ago at 84% and new business was.

Down 8%, the combined ratio and the quarter was a profitable and 92, 3% and the underlying combined ratio was a profitable 85, 5% and all.

E&S segment, we reported 23% net premiums written growth for the quarter relative to a year ago.

Renewal pure price increases to average 6.9% new business was.

A strong 19% and retention increase.

The combined ratio for the segment was 96, 6% and the quarter driven by catastrophe losses, equating to 9.5 points, which was partially offset by 3 points of net prior year casualty favorable reserve development. The underlying combined ratio was a profitable now.

And 1%.

Moving to investments our investment portfolio remains well positioned as of quarter and 91% of our portfolio was invested in fixed income and short term investments with an average credit rating of 8 plus and effective duration of 3.9 years and offering a high degree of liquidity as.

$90 Preempting on recent calls the decline and the average credit rating of our fixed maturity portfolio to 8 plus and the quarter from double a minus reflects the meaningful reduction and office sector allocation to agency MBS over the past year as lower interest rates have accelerated prepayments as we had expected.

Given the low.

Very low reinvestment rates for this asset class, we have reallocated. These non sales disposal cash flows into other high quality fixed income sectors, including corporate bonds and other ABS classes that do not carry a AAA rating, but and our view currently offer a better risk and return profile.

Risk assets, which include.

We have the high yield allocation contained within fixed income public equities and limited partnership investments and private equity private credit and real asset strategies represent 11, 6% of our investment portfolio the.

The increase and our risk assets to 11, 6% from 10, 4% at year end was primarily driven by.

By higher valuations.

For the quarter after tax net investment income of $67.4 million was up $38.9 million from the year ago period, primarily driven by $24 million of after tax alternative investment gains compared to $13 million of off the tactical Conative investment losses, and the comparative quarter.

As a reminder, net investment income from alternative investments as reported on a 1 quarter lag.

The after tax yield on the total portfolio was 3.5% for the quarter delivering a very strong 10.3 points of ROE contribution the after tax yield on the fixed income securities portfolio was 2.6% and the second quarter, which.

And was slightly down from 2.7% and a year ago period.

<unk> total return and the portfolio was 1.9% per quarter.

<unk> and the strong alternative asset performance as well as the slight pullback and longer dated benchmark interest rates and a tightening of credit spreads, which increase the value of our fixed income securities.

The.

So after tax new money yields and fixed income purchases during the quarter was 1.8% compared with 2.7% per the year ago period strong operating cash flow of $292 million for the first half of the year equated to 18% of net premiums written.

Turning to capital our capital position remains extremely strong.

Strong with $2.9 billion of GAAP equity book value per share increased 6% during the first half of the year to $44.78.

Benefiting from our strong earnings.

We have built significant financial flexibility with $505 million of cash and investments and our holding company on.

Net premiums written to surplus ratio.

The average nightly below our target range at 133 times debt to capital ratio was 16% and at June 30 <unk>.

And our strong capital position, we have the financial flexibility to growth at rates, well above up 7% to 9% sustainable growth rate for the foreseeable future.

We continue to find attractive opportunities.

We did not repurchase any shares during the second quarter of subsequent to the quarter and under $100 million share repurchase program. During the first 6 months of the year, we repurchased approximately 53000 shares and an average price of $64.49 per totaled $3.4 million, we still have available 96.

6 million of remaining capacity under our share repurchase program, which we plan to use opportunistically.

I'll finish with some commentary on our updated outlook for 2021, we now expect the GAAP combined ratio excluding catastrophe losses of 89%. This is an improvement from our prior guidance of 90%.

And reflects strong profitability and inclusive of net favorable casualty reserve development and the first half of the year.

Our guidance assumes no additional prior accident year casualty reserve development.

Tasha fee loss assumption remains full points on the combined ratio.

We are now projecting after tax net investment income of 200.

Third $20 million, including 55 million and after tax gains from our alternative investments. This is up from our prior guidance of $195 million and $31 million, respectively, and principally reflects increased year to day as well as expected after tax net investment income from our alternative investments.

<unk> continued to expect and overall effective tax rate of approximately 25%, which includes and effective tax rate of 19% for net investment income and 21% for all other items and <unk>.

Just average shares from a $65 million on a diluted basis and.

Summary, we are off to a very strong scholar and 2020.

We are pleased with our year to date growth rate of 19% or 11% up to adjust and philosophy as COVID-19 items and up 16, 4% year to day operating Roe.

And our reported results reflect some non recurring benefits such as high and expected alternative investment income lower than expected cash and favorable.

1 book development, our underlying results are strong we are well positioned to continue and to continue delivering superior financial results and strong returns to our shareholders over the long term.

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

Thanks, Mark and we continue to execute on our objective of generating consistent and.

Resemble growth by identifying ways to bring additional value to our customers and our distribution partners. Our long term goal and commercial lines is to increase our market share and a 3% which is predicated on increasing our share of our distribution partners overall premiums and 12% and appointing new distribution distribution partners to achieve.

She has a 25% and Egypt market share.

We seek to augment these initiatives by expanding into new states.

Let me highlight some of our ongoing strategic initiatives.

The rollout of our market match tool, which provides our distribution partners with insights into their overall portfolio and identified targeted accounts to grow their business with us.

<unk> continues to progress well.

Mark and Max has currently been deployed and approximately 320 of our distribution partners and is targeted to grow to over 400 by year end.

The tool is seeing strong acceptance from our distribution partners and it has been a key contributor to our strong admissions growth over the past year, we are still just beginning.

Turning to realize the full value of this investment.

Our updated small business platform continues to roll out successfully.

Our business owners general liability automobile umbrella and cyber lines for eligible small business customers are now available on our new platform, we significantly streamline and quoting and issuance process for eligible accounts.

<unk> and are experiencing a strong increase and small business submission since the rollout.

Business owners line of business, which became available to our agents and the new platform and the fourth quarter of 2020, So new business premium increased from that line by more than 20%.

And personal lines, we successfully launched our homeowners product.

And he is targeting the mass affluent market at the end of June.

And this customer base tends to place greater value on coverage and service and as such is less price sensitive.

Our agents have responded favorably and have already begun submitting more of this business later this year and plan to launch coverage enhancements to our auto product designed to.

Better serve this customer segment.

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

Our focus within E&S remains small lower hazard accounts. This segment continues.

<unk> changed the benefit from higher pricing and increased deal flow into the non admitted space.

And I also want to highlight our recently published environmental social and governance report driving sustainable impact, which lays out our ESG values are embedded in the way, we do business and integral to the execution of our long term priorities.

Continue these include understanding and attempting to mitigate the impact of climate change per.

Abiding customers with responsive claim services and risk mitigation solutions and developing a highly engaged team of employees and leaders.

Enhancing diversity equity and inclusion is a big part of creating and engaged culture that celebrates creativity.

Innovation and idea generation and we seek to increase diversity at all levels and the organization.

And by acting and the interest of and providing value to all our stakeholders. We will serve the interest of our shareholders by generating sustained financial outperformance.

As we look to the remainder of 2021.

<unk> truly pleased with our market position and superior ability to execute and.

Confident that we can continue to build on our long term track record and performance that meets or exceeds our ROE targets with that we'll open the call up for questions operator.

Thank you and we will now begin the question and answer session.

And so all participants if you would like to ask a question. Please press star followed by the number 1 and please on mute your phone and record your name and company name clearly went from day your name and company name is required to introduce your question Chuck and Sylvia requests you May press star followed by the numbers to speak.

And speakers.

We have 2 questions or 3 questions in queue. Our first question comes from Matt Carl that day from J P. M..6 your line is now open you May proceed.

Well, thanks, and good morning.

John I appreciated your comments on inflation and.

And if my read of it.

And you have a healthy respect for it.

My question is.

What's your view of the industry from kind of twofold..1 is do you think others and the industry or could it take.

And the inflation that we're seeing seriously or do you think some people are trading and more transitory and then.

And then the follow on to that as well.

And what impact do you think that will have on the longevity and the pricing cycle.

Yes, Thanks, Matt Great question, and I always hesitate to comment too much on the industry and certainly have read the comments and our responses to the questions from a number of peers, who have reported to this point and.

And they all have different perspectives, and I think well.

Confidently state that they've got it factored in incentive and our loss picks and factored into reserves and I can only speak to the discipline with which we have always managed loss trends and earn pure rate to offset loss trend and our own portfolio and and discipline.

When we've had around that because I think the important part to understand us and inflation doesn't just manifest itself and expected loss trend and I go forward basis inflation will also manifest itself in some ways and your actual historical loss trend versus what you expected and as you know looking back over at least a decade.

We've been not just disciplined around that but highly transparent to our shareholders and the investor community in terms of how we view loss trend and the.

<unk>.

<unk> renewal pure rate and our loss picks. So that's the first point I would make I can't speak to whether other companies take the same approach that we.

But we maintain discipline on that and when you think about inflation and the impact on frequency and severity I think it's important to put it in context, and clearly for everybody and the industry right now evaluating and frequency and severity trends is complicated by a few different factors, obviously, 1 and social inflation and social inflation is 1.

1 that the.

And while it will impact your future loss trend expectations is also going to be seen and your historical loss trend and so when you look back of those prior accident years.

Actual change and frequency and severity versus what you thought it was and is that manifesting itself and higher average severity and manifesting itself.

<unk> and higher rates of litigation.

And then how do you respond to that and how does that influence your pic for the upcoming year. So thats. The first exceptional impact second exceptional impact, which a lot of time has been spent on and as COVID-19, and I think theres clearly been a lot of focus around the drop in frequency and 2020 and how that's continued into <unk>.

'twenty, 1, albeit at a lower pace, but also the offsetting impact and in some cases, partially and maybe more so of some increasing severity that has gone along with that and that is another exceptional factor that needs to be factored into our companies evaluate and then the third and more and more immediate is the economic inflation.

And that everybody is seeing although when you break down the component parts of the CPI and realize that it's largely driven by lumber and used cars are the big outlier, so while you've seen a little bit of upward pressure and other areas.

And so there's a number of different pieces. There I think the most immediate 1 and again from our perspective. This is always and our line of sight.

And always factored into how we evaluate and loss trends and and how we update loss trend assumptions, but in terms of the more immediate economic inflation I think you always want to keep that in context, and when you think about auto physical damage and the.

Severity impact on that.

That particular sub line of business severities have been on the rise and auto Phys dam.

<unk> for the industry for a while and previously it was driven by the increased cost of repairing vehicles because of more technology and the vehicles and then when you think about the impact of used cars, it's largely on total losses and total losses are a portion and non.

And not be overwhelming portion of loss dollars and auto Phys dam, but you also wanted to think about.

About that short term impact the severity and the context of lower frequency. So thats. The first point and then with regard to lumber and and my apologies for going out a little bit longer but theres a complicated answer to your question with regard to lumber I think it's important to also keep that in context. So clearly that is now manifesting itself.

And average severity and let me talk about home first because and the homeowners line lumber is going to have a bigger impact than it is and commercial lines.

1 was just a small portion of the last dollar and when you think about the other big piece, the big driver and CPI relative to home and it's gonna be drywall drive only went up about 10% and the same.

Time periods. So when you put all the pieces together.

For personal per home, let's say the construction cost index is up about 17% and then remember that about 20% of the average last dollar is for non building related items extra expense with contents and those sort of things. So it's in there, but it's not as bad as the headline would suggest.

And also at least for US when you look at our frequency relative to non cat property.

Many of us to run a little bit lower than anticipated. So there is an offset there and then on the commercial property side. The actual construction cost index is probably closer to 5% and you've got about 40% of the loss sellers and commercial properties.

And are not building related so I have puts and important context around how the headline numbers work their way through all of that said property is still alive and the industry that is running combined ratios well above its risk adjusted target that's aligned that you'd never want to look at it and on an ex cat basis, you want to look at it on a normal.

<unk> ex cat basis, and the other area of discipline that we have and I can't speak to others is with regard to insurance to value. So we are constantly updating our cover day values on the home side and are building values on the property side with an eye towards inflationary costs and those get factored in.

And allow you to stay upfront and at least in terms of times of normal inflation and so we're not going to prognosticate. If this is transitory and not transitory and really focus more on the diligence and the process. We've always had around embedding loss cost changes into our loss picks.

That's great. Thank you very insightful.

Normalized and really helpful.

A quick quick follow up just the numbers answer is probably from Mark.

Net cat losses and standard commercial.

Have those by line and I think you've given me and the path between property and commercial auto and Bob.

Sure Matt.

In the quarter and standard commercial lines, the catastrophe losses were 11.

<unk> and $3 million or 1.9 percentage points on the combined ratio for standard commercial lines, and that's really spread across 3 lines of business within commercial property, it's $9.2 million and commercial auto it's about 500000 and and the bulk line at 1.6 million per total.

111, 3 or again, 1.9 points on the combined ratio.

Alright, great. Thank you for the answers and congrats on a really nice margin here.

Thank you.

Thank you Matt. Our next question comes from Paul Newsome from Piper Sandler. Your line is now open you May proceed.

Good morning, congratulations from the court.

And then I wanted to ask just kind of a big picture question.

You're getting rate above what you think.

And would the claims inflation is.

What factors should we consider that might move from.

And having underlying.

Underwriting margin expansion in 2022 versus 21.

Just maybe you could think about the pieces that we should be thinking about that.

And that might offset or change that and.

Embedded underwriting.

Yes, so Paul.

Question, I, do think and part and ties back to the discussion, we just had relative to loss trend and the impacts on loss trends and we've tried to stress this and I know it gets complicated, but when you think about a forward loss picks and I'll think about 'twenty, 1 and 22.

Not just about what is the impact of expenses.

And was trained and what is the impact of expected written rate. That's certainly influences your loss pick for the upcoming year, but the equal influence at least for those of US who have a fairly disciplined and rigorous process around that is looking back over the last 5 accident years and saying okay.

And with each passing quarter.

Expect my actual frequency and severity emerge that's your historical loss trend. So when you look back and bring all of those prior accident years to a fully trended basis based on actual changes in frequency and severity and then bring them to present rates. So what was my earn rate and each of those years, that's your starting point.

And that starting point could be influenced by social inflation, so to the extent social inflation and hit the prior accident years, and therefore your loss trend and those years as emerging a little worse than expected either driven by frequency or severity that is influencing the pick people per your upcoming year before you.

From expected future trends and expected written rate and I think that's the 1 piece that we're certainly diligent about and Fortunately for us when we look back.

Actual trends have been fairly stable with what we've embedded in there and we've been earning rate at a very consistent basis.

And Lowe's to offset that trend for everybody and the industry that will be a big influence when they do their planning for 2022 on the casualty lines and I think that's the 1 area and I'm not prognosticating for us or anybody else, but that is the 1 I would say unknown or the information you would probably would not have from a lot.

<unk> when do you think about rolling forward from this year to next.

Okay Thats my only question appreciate it thank you.

Thank you Paul.

Thank you Paul our next question comes from James Bass from K B W. Your line is now open you May proceed.

Thank you and good morning.

So I was just wondering on that.

And pricing.

Can you give us an idea of your outlook for your trajectory for pricing on the commercial side I know that it's 5%.

5.1% and it was 5.7% last quarter can you give us a sense.

And.

Is that accelerating or kind of where do you see rate increases going from here.

Yes.

Obviously, if you look at our performance over the first 2 quarters, it's been relatively stable and while the market dynamic is and influence on how we manage pricing. We also have taken a very.

Sensitive.

Measured approach in terms of understanding our own pricing targets based on our starting point profitability and our expectation expectation of trend and we're going to manage rate and that contracts as opposed to just trying to maximize rate and the short term because the market and may or may not be conducive and I guess, what I would point you to.

How we think about this going forward and why we think the current pricing environment and a sustainable is what's driving the pricing environment and whether those forces continue to be present, when we look forward and we would argue that they are so let me just hit the key ones. So number 1 is the low interest rate environment.

And we all know where that is and I think as we tried to point out and our prepared comments. We think we've got a high quality alternative investment portfolio and its been generating really strong returns for us we realize that that to a certain extent per and the entire industry is masking the pressure on the core fixed income portfolios and when.

And you roll forward the investment income impact from those declining yields and that is something that will put pressure on underwriting margins and the second piece is when you think about and.

Number of companies, we would not us but other companies have continued to point to a little bit more volatility and their non cat losses and the more recent quarters.

And look back over the last couple of years, you've seen higher and elevated and more volatile cat and non cat property, you've got Permian reinsurance pricing and while it may be disappointing for the reinsurers in terms of where they are relative to where they are expected to be from a pricing perspective prices are still up and that has to be factored in and then loss trends.

With and without additional inflation continue to be a pressure point and that as we pointed to the social inflation trends that were emerging and included in our.

Loss reserve estimates and our loss picks pre pandemic, we fully expect to reemerge as the economy reopens everybody's dealing with.

And those same drivers and we think that crops up the pricing environment now the other.

<unk>.

And when you put it all together and think about it is the starting margins for most of the industry needs improvement and I realize we're everybody's reported really strong results we tend to focus.

Trends underlying non.

And not ex cat underlying with a normal cat load when you're thinking about the starting point and when you look at that for many companies and the industry and the industry broadly and Theres some loss ratio improvements still necessary and then the final point I would make would be a lot of the back down and the last couple of.

Quarters, and the headline rate number for the industry has been driven by the lines that were really high in terms of rate level. So think high hazard excess umbrella specialty lines and our NPL management liability, that's what's bringing the overall number down, but I think you've seen a little bit more stability and commercial auto.

Just on liability and commercial property and the lines that make up our portfolio.

Perfect.

And then just.

And you mentioned some I think Mark mentioned some expense ratio improvement outside of the day.

Emperor Covid savings can you comment on.

And that sort of map out whats the expense savings strategies are moving forward.

Yes, certainly so when we went into 2021, we put forth our expectations for the full year.

Combined ratio, which was 91% underlying combined ratio and and embedded within that guidance suite.

Talked about about 40 basis points of expense ratio improvement and that was off and adjusted 2020 expense ratio as you know 2020 at a number of COVID-19 items.

It was 33.8 on a reported basis, but adjusted for the pluses and minuses that was really a <unk>.

Indication going into 2021 was for 33 expense ratio.

And 80 basis points of actual improvement of <unk> 40 on an underlying basis.

Today, we're at a 32, 4 so about 60 basis points.

Points of improvement versus expectations and <unk>.

A couple of.

Expert there it really is our travel and entertainment, we had expected <unk> to be a little bit lower than expected and the first half of the year and the run rate, but it's actually come in less than expected and.

And then we have just some overall general and overhead items that have come in below expected and that includes things like rent station.

Stationery supplies.

Drive insulting fees audit fees and things like that that has benefited the expense ratio.

We expect some of those items to perhaps reported back to more normal levels and maybe a little bit of upward pressure on the expense ratio get and it's back to more and they expected level for the full year 2021.

Coming into 2022 and.

Into 2023, we do have a plan in place and line of sight and.

2 continuing to be more efficient and as a company.

And that will be reflected in <unk> and.

And expense ratio that we expect to be able to bring down and we've talked and the polished about.

And appropriate expense ratio.

<unk> top companies for our mix of business as we stand today of around <unk> 32, and we think that is a powerful way to get that by the end of next year going into 2023, So that's sort of how we're thinking about the overall expense ratio.

Thank you that covers it from me.

Thank you James Our next question comes from Grace harder from Bank of America. Your line is now open you May proceed.

Hi.

And about the recent increases in severity and personal lines.

And wondering where the pricing outlook and today versus.

When you all originally started thinking about the transition towards the mass affluent book and.

As we kind of wait to see how these.

Severity trends play out if there was any impact on your growth appetite are they expected and speed of the rollout or uptake.

And in the meantime, thank you.

Yes sure.

I don't know that our our view has changed at all I mean honestly when you look at what we're seeing and our own portfolio and again, we've talked about the frequency drop and auto and it was certainly higher on the personal side and also on the commercial side, but even that tick up and severity offsetting that was.

A lot more pronounced on the commercial auto side and it wasn't in the personal auto side. So.

We don't have anything and our data, suggesting that there has been a significant shift from a severity perspective and personal auto with regard to the pricing environment.

And.

I'm actually surprised that and pricing actions.

<unk> words dramatic as they were in the middle of Covid, so rather than providing.

The order book credits that were deemed to be appropriate and the notion of significantly adjusted your base rate on a go forward basis, assuming some permanent shift and frequency and severity I think it's worth caught some of the market participant short.

Sure, we didnt do that we kept our auto pricing relatively flat and and hurt our competitive position and the near term I think <unk> our expectation is that the.

More recent results now are starting to put some upward pressure on personal and our pricing and we think that will start to make its way through the marketplace, but again, we're moving into a segment.

And is that we think is not as price sensitive and certainly home is as big of a consideration and that accounts decision, making as well.

And we think about it more on a package basis. So.

And Thats, how we think about the market going forward.

Okay.

And then I had a quick 1 on standard commercial.

And we've heard a lot of carriers talk about elevated property losses, and the quarter, but if I look at sales non cat property losses, and it just standard commercial if they don't look particularly out of line with recent quarters. So I was just wondering the expense with gill saw that as.

And bizarre alright.

Anything particular about that make up our cash flow.

And help you avoid that.

Our non cap property relative to our own expectations has been a little bit better than I expected for the first half of the year. When you compare it to the prior year last year was or wasn't exceptionally like non cap property year.

Well when we think about our normal run rate, we're a little bit better than expected.

And on non cap property.

And from a frequency and a frequency driven and I mentioned earlier and the response to the question around inflationary impacts.

And of those on the property side are impacting severity, a little bit but and our.

Our portfolio. There is there is an offsetting frequency benefit and would approve all together were a little bit better than expected on non cap property.

Thank you.

And.

Thank you Grace or next question comes from Scott Helane, yet from RBC capital markets. Your line is now open you May proceed.

Yes, good morning, most of <unk>.

Question and answer, but I just had a couple real quick.

Is there any way you could quantify what the I'm, assuming I think you mentioned it was a benefit of premium audit and exposure.

Units is there any way you can quantify what kind of impact that was and the second quarter.

And on growth versus the past few quarters, and I would imagine that book.

And so that benefit will be kind of and the second half and into next year, but I'm wondering if you are able to talk a little more on that.

Yes, So let me let me try and answer this for you. So generally speaking it from our perspective, the best way for us to think about exposure.

<unk> range, because there are different pieces that will move around and there that some companies consider exposure others might not and we just look at the difference between the total premium change on our renewal book and the pure rate change and in the quarter that was about 2.7 points to 7% and then when you think about that and the overall portfolio.

And your renewal business is about 81% of the premium and the quarter. So I assume a little over 2 points of the growth in the quarter would have been attributable to exposure change.

And that's that's definitely helpful and.

And then I wanted to switch over to the share buybacks you rock.

And share buybacks in Q1 and your and in.

Q2, so I'm wondering if you could just provide just your your thoughts and your appetite how youre thinking about buybacks.

At current levels and obviously the <unk>.

The market's still attractive and you're writing a lot of business, but I'm, just wondering how how buybacks and Mike might be factored in and come into play as you look for the rest of the year.

But certainly this is Marc we put the buyback program in place back in December and as we mentioned and it's an opportunistic share buyback program.

And we're right now seeing very attractive opportunities to grow our business and you've seen the growth rate is significantly above where we've been for the last number of years.

And so for us the <unk>.

From profitability with generating the capital that we're <unk>.

Generating the best use of capital is just to put it back into the business and grow our core operations, because it's very attractive returns for our shareholders.

When we think about the buyback program it.

It is going to.

We would like to deploy it.

And at a time.

We'll be patient and judicious and look for and opportunity set for the market to what's executed and buyback program. We don't have a budget per se or a plan to execute it.

Net number.

And third quarters, it really is operating.

And be opportunistic.

Okay.

And just last question I had was just on E&S. It sounds like you are you have you had.

Good momentum and premium there it sounds like you have good momentum going and the second half of the year and you mentioned.

The new platform and so if some of this just yet.

Expanding with distribution partners and if you can talk more on that and in terms of obviously, there's a lot more risk going to hit US and then standard but can you can you talk about how much of that is just is kind of organic expansion through through distribution and you know what.

Do you see that playing out into 2022.

Yes.

All of our.

Organic through distribution, we occasionally will add a new distribution partner, but we've just seen a lot more submission activity coming through and the.

And.

And that's really driving the decrease the reference to the automation platform is a pretty we talk a lot and there are other market participants talk a lot about small business platform enhancements, which.

As we mentioned, we're rolling out for E&S, we're rolling out something very similar.

As a full and quote and buying system for small E&S business, which we think will really enhance our competitive positioning with those wholesalers as that continues to roll out through the balance of this year and into early next year. So we like the position and.

And the market is benefiting from strong rate and as you saw our rate level, and just under 7% and a quarter and E&S, but also strong submission flow, but it's the profile of the business. We're writing is very similar to the profile of our buckets that small binding authority business casualty driven it's more contractors habitation all those.

Types of accounts.

Okay. Okay I appreciate the answers thanks.

Thank you Scott speakers and we did not have any questions and Q. Once again to all participants if you would like to ask a question. Please press star followed by the number 1 and record your name and company.

And the market clearly went from debt to cash.

And so your request please press star followed by the number too.

Great well. Thank you if there's no further questions. We appreciate all your time this morning, and as always please follow up with Roku and with.

And any additional questions.

Thank you.

Okay.

That concludes today's conference. Thank you everyone for joining you may now disconnect.