Q4 2021 Selective Insurance Group Inc Earnings Call

Good day, everyone and welcome to selective insurance group's fourth quarter 2021 earnings call. At this time for opening remarks, and introductions I would like to turn the call over to senior Vice President Investor Relations and Treasurer Rohan Bye.

Speaker 1: Good day everyone, welcome to selective insurance groups 4th quarter 2021 earnings call. At this time for opening remarks and introductions, I would like to turn the call over to Senior Vice President Investor Relations and Treasure, Rohan Pai.

Good morning, everyone and thank you with that.

Speaker 2: Good morning, everyone, and thank you. We're family costing, just call on our website, deletive.com. The replay is available in the matchstick. We use three measures to discuss our results and business operations. First, we use GAAP financial measures reported in our annual quarterly and current report filed with the FEC.

Commenting this call on our website connective dot com a replay is available until March six we.

We used <unk> to discuss our results and business operations first we are GAAP financial.

Financial measures as reported in our annual quarterly and current reports filed with the SEC.

Speaker 2: Second, we use non-GAC operating income and non-GAC operating return and common equity to analyze trends in our operations. We believe these measures make it easier for investors to evaluate our insurance bill.

Second we used non-GAAP operating income and non-GAAP operating return on common equity to analyze trends in our operations. We believe these measures make it easier for investors to evaluate our insurance business.

Speaker 2: Non-GAP operating income is net income available to common stockholders, excluding the aftertaste impact of net realized gains of losses on investment, and unrealized gains of losses on equity security.

non-GAAP operating income is net income available to common stockholders, excluding the after tax impact of net realized gains or losses on investments and unrealized gains or losses on equity securities.

Speaker 2: Non-GAP operating return on common equity is non-GAP operating income divided by average common stock of the equity and gap reconciliation to any reference non- GAAP financial measures are in our supplemental investors package found on our website, investors page.

non-GAAP operating return on common equity as non-GAAP operating income divided by average common stockholders' equity and GAAP.

Patients to any reference non-GAAP financial measures in our supplemental investor package.

Website investors page.

Speaker 2: Third, we make statements and projections about our future performance. These forward-looking statements under the private security litigation reform asked of 1995. They are not guarantees of future performance and are subject to risk and uncertainty.

Third we make statements and projections about our future performance. These forward looking statements under the private Securities Litigation Reform Act of 1095.

Guarantees of future performance and are subject to risks and uncertainties.

Speaker 2: We did have three risks and uncertainties, including supplements and disclosures about the COVID-19 pandemic in detail in our annual quarterly and current report filed with the SEC. And we undertake no obligation to update or revise any forward-looking statement. Now, I'll turn the call over to John Machioni, our president and chief executive officer, who will be followed by mass work off our EVP and chief financial officer, John . Thank you, Robert.

We discussed three risks and uncertainties, including supplemental disclosures about the COVID-19 pandemic and detailed in our annual quarterly and current reports filed with the SEC and we undertake no obligation to update or revise any forward looking statements now I will turn the call over to John <unk>, Our President and Chief Executive Officer.

He will be followed by Mark Wilcox, our EVP and Chief Financial Officer John .

Thank you Ron and good morning.

Speaker 3: A focus my opening remarks on our strong financial operating results then turns to key industry trends and how responding to them. Mark will have provided additional details on our results for the fourth quarter in the year. And I'll return with a few closing comments before opening the call up to questions.

Focus my opening remarks on our strong financial and operating results, then turn to key industry trends and how we're responding to them.

Mark will then provide additional details on our results for the fourth quarter and the year and I'll return with a few closing comments before opening the call up to questions.

Speaker 3: 2021 marks are 8th consecutive year of double digit operating hour.

2021 marks our eighth consecutive year of double digit operating Roe.

Speaker 3: This track record of consistently strong performance is matched by very few in our industry.

This track record of consistently strong performance is matched by very few in our industry.

We are proud of this achievement and we're pleased by am best upgrade of our financial strength rating to a plus.

Speaker 3: We're proud of this achievement and we're pleased by our best upgrade of our financial strength rating to A plus.

Speaker 3: This upgrade is a testament to our excellent financial position and consistent superior operating performance.

This upgrade is a testament to our excellent financial position and consistent superior operating performance.

Speaker 3: As proud as we are about performance, we're even more enthusiastic about the opportunities in life before.

As proud as we are of our performance, we're even more enthusiastic about the opportunities that lie before us.

Speaker 3: We've built a unique franchise with a strong foundation of great people, sophisticated tools and technologies, and deep relationships with a top notch group of distribution parts.

We have built a unique franchise with a strong foundation of great people.

<unk> tools and technologies and deep relationships with a top notch group of distribution partners.

Speaker 3: We generated solid financial results in the fourth quarter with a 13.8% annualized non-GAP operating or OV.

We generated solid financial results in the fourth quarter with a 13, 8% annualized non-GAAP operating Roe.

Speaker 3: For the full year, our 14.3% non-Gab operating RLE was extremely strong and well above our target of 11%.

For the full year or 14, 3% non-GAAP operating ROE was extremely strong and well above our target of 11%.

Speaker 3: Underwriting profitability and investment performance were both meaningful contributors to our financial result results for the quarter and the year.

Underwriting profitability and investment performance, we are both meaningful contributors to our financial results for the quarter and the year.

Speaker 3: The corner drivers of our net freeing and drinking growth included overall renewal, pure price increases, averaging 4.7% which were driven by 5% in commercial lines and 5.9% in EMS.

For the quarter drivers of our net premiums written growth included overall renewal pure price increases, averaging four 7%, which were driven by 5% in commercial lines and five 9% in E&S.

Speaker 3: Exposure growth are approximately 3.6% and are renewable for commercial lines, strong retention across all three segments, an overall new business growth of 11%, including 8% in commercial lines and 30% in E&F.

Exposure growth of approximately three 6% on our renewal book for commercial lines strong retention across all three segments and overall, new business growth of 11%, including 8% in commercial lines and 30% in E&S.

Our 93, 1% combined ratio for the quarter included four five points of net catastrophe losses, partially offset by one nine points of net favorable prior year casualty reserve development.

Speaker 3: Our 93.1% combined ratio for the quarter included 4.5 points of necotasophy losses partially offset by 1.9 points of net favorable prior year casualty reserved.

Speaker 3: The underlying cabbiber ratio was 90.5, reinforcing the high quality of our book of business.

The underlying combined ratio was 95 reinforcing the high quality of our book of business.

Net investment income after tax was <unk> $65 million in the quarter benefiting again from the exceptional performance of our alternative investments, particularly unrealized gains on our private equity limited partnership portfolio.

Speaker 3: The investment income after tax was $65 million in the court, benefiting again from the exceptional performance of our alternative investments, particularly unrealized gains on our private equity limited partners.

In addition to delivering excellent results I wanted to highlight some of our other key achievements for the year.

Speaker 3: In addition to delivering extra results, I want to highlight some of our other key achievements for the year.

Speaker 3: We continue to our decade-long track record of achieving renewal pure price increases that have been in line with or above expected loss

We continued our decade long track record of achieving renewal pure price increases that have been in line with or above expected loss trends.

Speaker 3: This track record gives us confidence to effectively navigate through all market sites.

This track record gives us confidence to effectively navigate through all market cycles.

We executed several strategic initiatives that will drive ongoing profitable growth such as expanding utilization of market mix.

Speaker 3: We have to cut several strategic initiatives that will drive ongoing profitable growth, such as expanding the utilization of market next.

Speaker 3: Our agency facing platform that helps identify new business opportunities, upgrading our technology platforms for small commercial and the EMS business, and repositioning our personalized products and services to compete in the mass upload market.

Our agency facing platform that helps identify new business opportunities upgrading our technology platforms for small commercial and E&S business and repositioning our personal lines products and services to compete in the mass affluent market.

Speaker 3: We also laid the foundation to expand our commercial line footprint by three additional states in the latter half of this year.

We also lay the foundation to expand our commercial lines footprint by three additional states in the latter half of this year.

And we've made significant progress on our ESG initiatives and disclosures, including taking a number of steps to enhance the employee employee diversity at all levels within the organization.

Speaker 3: And we made significant progress on our ESG initiatives and disclosures, including taking a number of steps to enhance the employee diversity at all levels within the organization.

Speaker 3: We also ensure our employees were supported throughout the pandemic as we maintain excellent employee engagement and alignment despite the largely remote work environment.

We also ensured our employees were supported throughout the pandemic as we maintained excellent employee engagement and alignment despite the largely remote work environment.

Speaker 3: Our success on this front is best demonstrated by selected being served by it as a great place to work for the second consecutive year.

Our success on this front is best demonstrated by selected being certified as a great place to work for the second consecutive year.

The achievement I am most proud obviously unwavering dedication of our employees and serving our customers and distribution partners and helping them navigate through the pandemic related challenges and the various catastrophic events they have experience.

Speaker 3: The achievement I am most proud of is the unwavering dedication of our employees in serving our customers and distribution partners and helping them navigate through the pandemic-related challenges and the various catastrophic events they've experienced. Their efforts over the past two years have further strengthened our reputation in the market with customers and distribution partners.

Our efforts over the past three years have further strengthened our reputation in the market with customers and distribution partners.

Speaker 3: The excellent performance we delivered in 2021 is the direct result of our ability to successfully execute the fundamentals of our business, risk selection, pricing and claims adjudication.

The excellent performance we delivered in 2021 is the direct result of our ability to successfully execute the fundamentals of our business risk selection pricing and claims adjudication.

Speaker 3: Our strategic competitive advantages in our core commercial lines business have as well positioned for the future.

Our strategic competitive advantages in our core commercial lines business have us well positioned for the future.

Speaker 3: Those key advantages are a unique field model placing empowered underwriting staff in proximity to our distribution partners and customers.

Those key advantages are our unique field model, placing empowered underwriting staff in proximity to our distribution partners and customers.

Speaker 3: a franchise value distribution model defined by meaningful and close business relationships with a group of top-notch independent agents.

A franchise value distribution model defined by meaningful and close business relationships with a group of top notch independent agents.

Speaker 3: Our ability to develop and integrate sophisticated tools for risk selection, pricing, and claims management.

Our ability to develop and integrate sophisticated tools for risk selection pricing and claims management deliver.

Speaker 3: Delivering a superior omnichamma customer experience enhanced by digital platforms and value-out of services and a highly engaged and aligned team of extremely talented employees.

Delivering a superior omnichannel customer experience enhanced by digital platforms and value added services.

At a highly engaged and aligned team of extremely talented employees.

I'll close by highlighting two key market dynamics and how we are managing through this environment first there.

Speaker 3: are closed by highlighting two key market dynamics and how we are managing through this environment. First, there is less certainty in forward lost trends as we emerge from a pandemic influence economy. Every company in the market faces this reality.

There is less certainty and forward loss trends as we emerge from the pandemic influenced economy.

Every company in the market faces this reality.

Speaker 3: This uncertainty is driven primarily by three factors, economic inflation, social inflation, and then two most recent accident years presenting unusual frequency and severity pass.

This uncertainty is driven primarily by three factors economic inflation, social inflation and the two most recent accident years, presenting unusual frequency and severity patterns.

Speaker 3: With regard to economic inflation, the impact continues to be largely on the shorter-tailed property lines, and these trends have persisted longer than originally anticipated.

With regard to economic inflation the impact continues to be largely on the shorter tail property lines and these trends have persisted longer than originally anticipated.

On the casualty lines, the social inflationary trends that were evident pre pandemic are expected to persist.

Speaker 3: On the cash decal lines, the social inflationary trends that work evident pre-pandemic are expected to persist.

Speaker 3: Medical trends, which in fact workers' compensation and biolientric coverages have been more stable.

Medical trends, which impact workers' compensation and bodily injury coverages have been more stable.

Speaker 3: Finally, we use prior accident years as a basis to estimate future year loss ratio selections. And accident years 20 and 21 show meaningful decreases in frequency, largely offset by increases in severity.

Finally, we used prior accident years as a basis to estimate future year loss ratio selections and accident years, 2020 , one show meaningful decreases in frequency largely offset by increases in generics. These patterns create additional uncertainty in projecting frequencies and severities in a post pandemic.

Speaker 3: These patterns create additional uncertainty in projecting frequencies and securities in a post-pandemic environment.

Environment taken.

Speaker 3: Taken together, these additional uncertainties have led us to increase the expected loss trend contained in our 2022 loss ratio estimates from approximately 4% to 5%.

Taken together these additional uncertainties have led us to increase the expected loss trend contained in our 2022 loss ratio estimates from approximately 4% to 5%.

Speaker 3: Second, given these lost trends, combined with continued pressure on investment income from historically low interest rates, elevated catastrophe losses, and a firmly re-insurance market, we expect a commercialized pricing environment other than workers' compensation to remain favorable.

Second given these loss trends combined with continued pressure on investment income from the historically low interest rates elevated catastrophe losses, and affirming reinsurance market, we expect the commercial lines pricing environment other than workers' compensation to remain favorable.

Speaker 3: We have demonstrated for over a decade our ability to consistently obtain renewal pure price increases that are in line with or above expected loss trends. An approach we will maintain.

We have demonstrated for over a decade, our ability to consistently obtain renewal pure price increases that are in line with or above expected loss trends at approach we will maintain.

Speaker 3: We also pride ourselves on maintaining a similar level of underwriting and pricing discipline when evaluating new business operations.

We also pride ourselves on maintaining a similar level of underwriting and pricing discipline, when evaluating new business opportunities.

Speaker 3: We will continue to leverage our sophisticated underwriting and pricing tools, branchize distribution relationships, and superior customer service and capabilities to achieve our top and bottom line target.

We will continue to leverage our sophisticated underwriting and pricing tools franchise.

Franchise distribution relationships and superior customer service and capabilities to achieve our top and bottom line targets.

Speaker 3: In our commercialized portfolio, renewal pure price increases, none of any exposure change, remain relatively stable throughout the year. Our fourth quarter, pure renewal rate was 5% compared to 5.3% for the full year.

In our commercial lines portfolio renewal pure price increases net of any exposure change remained relatively stable throughout the year.

Our fourth quarter pure renewal rate was 5% compared to five 3% for the full year.

Speaker 3: While pure price is the primary lever to maintain pace with loss trends and improve loss ratios, we take other actions to improve our loss experience.

While pure price is the primary lever to maintain pace with loss trends and improved loss ratios, we take other actions to improve our loss experience. These.

Speaker 3: These include underwriting actions to improve mix of business and claims initiative to improve outcomes while maintaining fair settlements for our claimants.

These include underwriting actions to improve mix of business and claims initiatives to improve outcomes, while maintaining a fair settlement for our claimants.

Speaker 3: On business links, we have won't focus on administering renewal pricing in a very granular fashion. They start expected future profitability of an account.

On business mix, we have long focused on administering renewal pricing in a very granular fashion based on expected future profitability of an account.

Speaker 3: Our underwriters manage the renewal pricing and retention based on profitability cohorts to achieve a favorable shift in portfolio.

Our underwriters manage the renewal pricing and retention based on profitability cohorts to achieve a favorable shift in portfolio mix in 2021, the cohort of accounts with the lowest expected future profitability, which represented about 11% of our portfolio.

Speaker 3: In 2021, the cohort of accounts with the lowest expected future profitability, which represented about 11 percent of our portfolio, had renewal pure rate increases 7 points higher than our top performing cohort, and were retained at 6 points lower than our top performing cohort, which represented 25 percent of our...

Renewal pure rate increases seven points higher than our top performing cohort and will retain at six points lower than our top performing cohort, which represent 25% of our book.

Speaker 3: This favorable shift in mix of business will benefit future loss ratio.

This favorable shift in mix of business will benefit future loss ratios.

Speaker 3: On the claims front, we are focused on improving outcomes, efficiency, and customer experience through initiatives such as centralization of complex claims, incorporation of robotic process automation for persons of loss, virtual appraisals, and digital fast tracking of certain low-complexity claims.

On the claims front, we are focused on improving outcomes efficiencies and customer experience through initiatives such as centralization of complex claims incorporation of robotic process automation for person with some loss virtual appraisals and digital fast tracking of certain low complexity claims.

Speaker 3: Overall, I'm very pleased with our strong execution, consistent track record of excellent results, and plans to generate consistent and profitable growth. Now I'll turn the call to Mark to review the results for the quarter.

Overall, I am very pleased with our strong execution consistent track record of excellent results and plans to generate consistent and profitable growth now I will turn the call to Mark to review the results for the quarter.

Speaker 4: 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 initial guidance for 2022. For the fourth quarter, we reported net income available to common stockholders, a diluted share of $1.59, a non-GAAP operating EPS of $1.56. Strong, underrated results and investment performance were both meaningful contributors to the results this 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 initial guidance for 2022.

For the fourth quarter, we reported net income available to common stockholders and diluted share of $1 59, and non-GAAP operating EPS of $1 56 strong underwriting results and investment performance will both meaningful contributors to the results this quarter.

Speaker 4: For the fall year, we reported record EPS of $6.50 and record non-GAAP operating EPS of $6.27, which was up 51% compared to the previous year.

All year, we reported record EPS of $6 50.

And record non-GAAP operating EPS of $6 27.

Which was up 51% in 2020.

Speaker 4: A strong non-cash operating ROE of 14.3% was driven by solid underlying results, favorable result development, and extremely strong alternative investment income.

Our strong non-GAAP operating ROE of 14, 3% was driven by solid underlying underwriting results favorable reserve development and extremely strong alternative investment income.

We also generated excellent top line growth in 2021 and advance our strategic objectives. Overall it was another excellent year for selective and our shareholders.

Speaker 4: We also generated excellent top-line growth in 2021 and advanced our strategic objectives. Overall, it was another excellent year for Selective and our shareholders.

Speaker 4: Turning to our consolidated underwriting results, we reported 9% growth in net premiums written in the fourth quarter. For the full year, net premiums written increased 15%, which makes it the strongest year of growth for Selective in almost two decades.

Turning to our consolidated underwriting results, we reported 9% growth in net premiums written in the fourth quarter of <unk>.

<unk> net premiums written increased 15%, which makes it the strongest year growth of selective in almost two decades.

Speaker 4: We reported a consolidated combined ratio of 93.1% for the fourth quarter.

We reported a consolidated combined ratio of 93, 1% for the fourth quarter.

Included in the combined ratio was $35 3 million of net catastrophe losses of four five points and $15 million of net favorable prior year casualty reserve development of one nine points.

Speaker 4: Contestrophy losses well-abated this quarter with two events in mid-December accounting for approximately half of the losses and primarily impacting commercial lines.

That's what the losses were elevated this quarter with two events in mid December accounted for approximately half of the losses and primarily impacting commercial lines.

Speaker 4: On an underlying basis or excluding catastrophes in prior year casualty reserve development, the combined ratio is 90.5% for the quarter.

On an underlying basis, excluding catastrophes and prior year Casualty reserve development. The combined ratio was 95% for the quarter.

Speaker 4: For the year, we reported a very profitable combined ratio of 92.8% and an underlying combined ratio of 90.1%. The 90.1% underlying combined ratio compares favorably to our initial 2021 guidance of a 91% underlying combined ratio with the variance driven principally by low and expected non-cap property losses and a low and expected expense ratio.

For the year, we reported a very profitable combined ratio of 92, 8% and an underlying combined ratio of 91% to 91% underlying combined ratio compares favorably to our initial 2021 guidance of 91% underlying combined ratio with the variance driven principally by lower than expected non cat property losses.

And the lower than expected expense ratio.

Moving to expenses our expense ratio was 32, 5% of the year compared with 73, 8% for the prior year period and reflects some of our cost containment initiatives as well as lower than expected travel and entertainment and overhead expenses.

Speaker 4: Moving to expenses, our expense ratio was 32.5% for the year, compared with 33.8% for the prior year period, and reflects some of our cost containment initiatives, as well as lower than expected travel and entertainment and overhead expenses.

Speaker 4: We remain focused on lowering the expense ratio through a range of initiatives while ensuring we are investing appropriately to support our longer-term strategic objectives.

We remain focused on lowering the expense ratio for a range of initiatives, while ensuring we are investing appropriately to support our longer term strategic objectives.

Speaker 4: We've brought our expense ratio down meaningfully since its peak of 35.3% in 2016. While we expect our 2022 expense ratio to be flat with 21, as our continued cost containment initiatives will be offset by pandemic-driven expense savings trending back to pre-pandemic levels, we expect to lower it and achieve a longer-term expense ratio target in 2023.

We report our expense ratio down meaningfully since its peak of 35, 3% in 2016.

While we expect our 2020 twos expense ratio to be flat with 21 as our continued cost containment initiatives will be offset by pandemic driven expense savings trending back to pre pandemic levels, we expect to Laurence and achieve our longer term expense ratio target in 2023.

Corporate expenses, which are principally comprised of holding company costs and long term stock compensation totaled.

Speaker 4: Corporate expenses, which are principally comprised of holding company costs and long-term stock compensation, for $5.4 million in the quarter and $28.3 million for the year.

$5 4 billion in the quarter and $28 3 million for the year.

Speaker 4: Turning to our segments, for the fourth quarter, standing commercial lines net premiums written increased 8%, driven by Renault fuel price increases averaging 5%, solid and stable retention of 86%, and new business growth of 8%. Exposure growth was also positive. For the year, net premiums written increased 16% or 12% when adjusted for the prior year COVID-19 related items.

Turning to our segments for the fourth quarter standard commercial lines net premiums written increased 8% driven by renewal pure price increases, averaging 5% solid and stable retention of 86% of new business growth of 8% exposure growth was also positive.

Net premiums written increased 16% on 12% when adjusted for the prior year COVID-19 related items.

Speaker 4: The commercialized combined ratio was a profitable 93.1% for the fourth quarter and included 4.2 points of net catastrophe losses and 2.4 points of net farewell prior year cashly reserve balance.

The commercial lines combined ratio was a profitable 93, 1% for the fourth quarter and included $4 two points of net catastrophe losses, and two full points of net favorable prior year casualty reserve development.

Speaker 4: The favorable prior year casualty reserve development was driven by $30 million for the workers' compensation line related to accident years 2019 and prior. This was partially offset by $15 million of reserve strengthening for the commercial owner line related principally to higher than expected bodily injury severities for the 2016-19 accident

Favorable prior year Casualty reserve development was driven by $30 million for the workers compensation line related to accident years 2019, and Prime this was partially offset by $50 million of reserves strengthening for the commercial auto line related principally to higher than expected bodily injury severities for the 2016 through 19 exited.

Yes.

Speaker 4: The commercial line's underlying combined ratio was 91.3% for the quarter. For the full year, the combined ratio was a very profitable 91.9% and the underlying combined ratio was 90.6%.

The commercial lines underlying combined ratio was 91, 3% for the quarter for the full year combined ratio was a very profitable 91, 9% and the underlying combined ratio was 96%.

And our personal lines segment net premiums written increased 1% in the quarter, but were down 1% for the year.

Speaker 4: In our first aligned statement, net premiums were at an increase of 1% in the quarter, but were down 1% for the year, reflecting continued competitive market conditions, particularly for personal debt.

<unk> continued competitive market conditions, particularly for post holdup.

Speaker 4: We're starting to gain some traction in our new mass affluent target market for home, which is encouraging and an early indicator that our new strategy is working. However, it will likely take some time to get back into a consistent growth mode. Renewable fuel price increases averaged 1.1% for the quarter. Retention was slightly down relative to a year ago at 83%, and new business was down 9%.

We are starting to gain some traction in our new mass affluent target market, which is encouraging and as early indicators in our new strategy is working however, it will likely take some time to get back into a consistent.

Renewal pure price increases averaged one 1% for the quarter retention was slightly down relative to a year ago at 83% and new business was down 9%.

The combined ratio in the quarter was 97, 6% and included $9 nine points of that catastrophe losses.

Speaker 4: The combination of the quarter was 97.6% and included 9.9% of that capacity losses. The underlying combination was 87.7%. For the following year, the combination was 98.6% and the underlying combination was 85.9%.

The underlying combined ratio was 87, 7% for the <unk>.

Full year, the combined ratio was 98, 6% and the underlying combined ratio was 85, 9%.

Speaker 4: In our E&F segment, net premiums have increased 27% for the quarter relative to a year ago. Renewable fuel price increases averaged 5.9%. Retention remained strong relative to a year ago, and new business was up 30%.

In our E&S segment net premiums written grew 47% for the quarter relative to a year ago renewal pure price increases averaged five 9% retention remains strong relative to a year ago at new business was up 30%.

Yes also a renewal rights transaction is inserted in the fourth quarter was not a meaningful contributor to <unk> growth, although we expect renewals on that book to pick up in the coming quarters.

Speaker 4: The Argo renewal rates transaction that is accepted in the fourth quarter was not a meaningful contributor to premium growth, although we expect renewals on that book to pick up in the coming quarter.

Speaker 4: The combined ratio for the segment was an extremely profitable 88.8% of the group and included 1.6 points of that catastrophe losses. The underlying combined ratio was 87.2%. For the full year, the combined ratio was 94.3% and the underlying combined ratio was 88.7%. And that sentence written growth was a very strong 23%. Overall, 2021 was our best year for our E&S segment since we launched it about a decade ago.

The combined ratio for the segment was an extremely profitable 88, 8% in the quarter and included one six points of net catastrophe losses. The underlying combined ratio was 87, 2% for the full year. The combined ratio was 94, 3% in the underlying combined ratio was 88, 7% and then fragrance written growth was a very strong 23.

Overall 2021 was our best year for our E&S segment since we launched it about a decade ago.

Moving to investments our investment portfolio remains well positioned as of quarter end, 91% of our portfolio was invested in fixed income and short term.

Speaker 4: Moving to investment, our investment portfolio remains well-positioned. As of quarter-end, 91% of our portfolio was invested in fixed income and short-term investment, with an average credit rating of A+, and an effective duration of 3.9 years, offering a high degree of liquidity. Risk assets, which include our high-yield allocation contained within fixed income, public equities, and alternatives represent 11% of our portfolio.

With an average credit rating of a plus and an effective duration of three nine years offering a high degree of liquidity risk assets, which include our high yield allocation contained within within fixed income public equities and alternatives represent 11% of our portfolio.

Speaker 4: For the quarter after tax and investment income of 64.5 million was up 16% for the year ago period. The increase was primarily driven by 19.6 million after tax alternative investment gains compared to 13.9 million in the comparative period. As a reminder, that investment income alternative investments is reported on a one-four-a-million. We expect the contribution from alternatives to return to more normal levels and the coming quarter.

For the quarter after tax net investment income of $64 5 billion was up 16% from the year ago period.

The increase was primarily driven by $19 6 million of after tax alternative investment days compared to $13 9 million in the comparative period. As a reminder, net investment income from alternative investments as reported on a one quarter lag.

We expect the contribution from alternatives to return to more normal levels in the coming quarters.

Speaker 4: The off-the-tack yield on the portfolio was 3.2% for the quarter, delivering a strong 9.4 points of ROE contribution, with alternative investments contributing 2.8 percentage points.

The after tax yield on the portfolio was three 2% for the quarter delivered a strong nine four points of our REIT contribution with alternative investments contributing to eight percentage points.

Speaker 4: The after tax yield on the fixed income securities portfolio was 2.5% in the fourth quarter, which was slightly down compared with the year ago. The average after tax new money yield on fixed income purchases during the quarter was 2.1% which is up to quite a lot for 1.8%, but down from 2.2% in the comparative quarter. The total return of the portfolio was 0.41% for the quarter and 2.74% for the year.

After tax yield on the fixed income securities portfolio was two 5% in the fourth quarter, which was slightly down compared with a year ago. The average after tax new money yield on fixed income purchases during the quarter was two 1%, which is up sequentially from one 8% down from two 2% in the comparative quarter. The total return.

The portfolio was four 1% for the quarter and 274% for the year.

With regards to our reinsurance program, we successfully renewed our cat program on January coats, we retained our existing structure from our KOL Pap program, including $44 million retention, although we added $50 million of limit in response to our growing book of business. We maintained a one on one time grew two 1% net probable maximum loss or <unk>.

Speaker 4: With regard to our reinsurance program, we successfully renewed our cap program on January 1st. We retained our existing structure for our core cap program, including $40 million retention, although we added $50 million of limits in response to our growing book of business. We maintained a 1 in 100, or 1% net probable maximum loss, or PML, for U.S. Hurricane at a very manageable 1% of gap equity, and a 1 in 250 net PML, or 0.4% probability, at 4% of gap equity.

For U S hurricane at a very manageable, 1% of the GAAP equity and a one in $250 at CMO of one 4% probability at 4% of GAAP equity.

Speaker 4: We also renewed our non-core footprint property cap program. We restructured this cover to be an E&S only cover, and it now covers all states for our E&S business, but does exclude standard commercial lines for our five U.S. states. We increased the retention to 10 million from 5 million and increased our co-participation from 15% to 34%. Pricing on our cap program increased modestly on a risk-adjusted basis, but was in line with that of loss-free accounts in the U.S.

We also renewed our noncore footprint property cap program, we restructured this cover E&S only cover it now covers all states E&S business, but does exclude standard commercial lines for our five newest states will increase the retention of $10 million from $5 billion and increased our co participation from 50% of the refocus.

Pricing on our cap program increased modestly on a risk adjusted basis, but was in line with that of loss free accounts in the U S. As.

Speaker 4: As a reminder, a range-ference program also includes IACC's loss treaties, which limit the impact to us from large losses to 2 million coverage per casualty and 3 million per occurrence per profit.

As a reminder, our reinsurance program also includes or excludes the loss treaty, which limit the impact to us for large losses to $2 million covers for casualty and $3 million per occurrence for property.

Turning to capital our capital position remains extremely strong with 3 billion of cap equity as of year end book value per share increased 9% during the year with strong earnings partially offset by dividends and the reduction of net unrealized gain.

Speaker 4: Turning to capital, our capital position remains extremely strong, with $3 billion of cap equity as of year-end. Book value per share increased 9% during the year, with strong earnings partially offset by dividends and a reduction in net unrealized gains.

Speaker 4: Cash point was extremely strong in 2021, with 771 billion about breaking cash flow with 24% of net premiums written. Our financial position is now the strongest in our company's 95 year history. An office of significant financial flexibility is we look to grow and execute on our strategic objective.

Cash flow was extremely strong in 2021 with $771 million of operating cash flow of 24% of net premiums written all financial position. It sounds its strongest in our company's 95 year history and offers us significant financial flexibility as we look to grow and execute on our strategic objectives.

Speaker 4: Our cash and investment position are not holding companies at 527 million, which is above our longer term.

Our cash and investment position of our holding company stands at $527 million, which is above our longer term target.

Our net premiums written to surplus ratio of 133 times slightly below our target range of $1 35 to 155 times.

Speaker 4: On that previous ridden to surplus ratio 1.33 times, it's slightly lower target range of 1.35 to 1.55 times. Identity capital ratio of 14.5% is also very conservative.

Debt to capital ratio of 14, 5% is also very conservative.

Speaker 4: We did not reproach us any shares during the fourth quarter or subsequent to the quarter end under a $100 million share reproach's program. We have 96.6 million of remaining capacity under this program, which we plan to use opportunistically.

Did not repurchase any shares during the fourth quarter or subsequent to the quarter end under our $100 million share repurchase program. We have $96 6 million of remaining capacity under this program, which we plan to use opportunistically.

Speaker 4: As we transition and look ahead to 2022, each year we establish an operating hour retarget based on at least the 300 basis points spread over our weighted average cost of capital, as well as considering other factors including market conditions.

As we transition and look ahead to 2022 each year, we establish an operating our retail based on at least the 300 basis points spread over our weighted average cost of capital as well as considering other factors, including market conditions for 2022, we have maintained at 11% non-GAAP op card in our retail goods, which is about 350 base.

Speaker 4: For 2022, we have maintained an 11% non-GAAP-operated ROE target, which is about 350 basis points over our weighted average foster capital. Our target ROE sets a high bar for our financial performance and aligns our incentive compensation structure with shareholder interest.

At this point overall weighted average cost of capital.

Target already set the high bar for our financial performance and aligns our incentive compensation structure with shareholder interests over.

Speaker 4: Over the years, our actual reported results have, of course, varied from our targets, given the inherent volatility in our business. But over the last eight years, we have delivered strong returns for our shareholders, within 11.9% average non-gap operating hour a week.

Over the years, our actual reported results have of course vary from on targets given the inherent volatility in our business, but over the last eight years, we have delivered strong returns for our shareholders with an 11, 9% average non-GAAP operating Roe.

Speaker 4: We have also grown tangible food value for share of what's accumulated in by 12.5% annually during the same time.

We have also grown tangible book value per share plus accumulated dividends by 12, 1% annually during that same time period.

Speaker 4: Let me finish with some commentary on our initial guidance for 2022. First, we expect a gap combined ratio excluding catastrophe losses of 91%. This assumes no prior accident year reserve development. Contestability losses of 4.5 combined ratio, after tax net investment income of 200 million, including 20 million in after tax gains from our alternative investment.

Let me finish with some commentary on our initial guidance for 2022 first we expect the GAAP combined ratio excluding catastrophe losses of 91%. This assumes no prior accident year Reserve development.

Catastrophe losses of four points on the combined ratio after tax net investment income of $200 billion, including $20 million in after tax gains of our alternative investments.

Speaker 4: An overall effective tax rate of approximately 20.5%, which includes an effective tax rate of 19.5% for net investment income and 21% for all other items. And weighted average shares of 61 million on a diluted basis, which does not reflect any share approaches that we may make under our authorization. With that, I'll turn the call back over to John .

And overall effective tax rate of approximately 25%, which includes an effective tax rate of 19, 5% for net investment income and 21% from all other items.

Weighted average shares of $61 million on a diluted basis, which does not reflect any share repurchases. We may make under our authorization with that I'll turn the call back over to John .

Speaker 3: Thanks Mark. Looking forward, we remain focused on achieving our objectives around probable growth and generating strong RLE's relative to our weighted average cost of capital.

Thanks, Mark looking forward, we remain focused on achieving our objectives around profitable growth and generating strong roes relative to our weighted average cost of capital. We have a decade long track record of successfully balancing our goals around growth and profitability, while driving improvements in our business mix.

Speaker 3: We have a decade-long track record of successfully balancing our goals around growth and profitability while driving improvements in our business.

I would like to highlight some of the key strategic initiatives that will contribute to our ongoing success in.

Speaker 3: I would like to highlight some of the key strategic initiatives that will contribute to our ongoing success. In commercial lines, we remain focused.

In commercial lines, we remain focused on three fronts strategically.

Speaker 3: strategically increasing agents of agent appointments to represent at least 25% market share in our footprint states. Increasing elected share of our agents premium to 12% and executing our MG rather than expansion plan. During 2021 to meet,

Strategically increasing agents agent appointments to represent at least 25% market share in our footprint states.

Increasing selective share of our agents premiums of 12% and executing on our geographic expansion plan during 2021, who made meaningful progress on each we.

Speaker 3: We appointed just over 100 new agencies, increasing our total agency count to approximately 1430, and our total starframes to approximately 2500. We expect this case to remain steady.

We appointed just over 100, new agencies, increasing our total agency count to approximately 1400 30, and our total storefronts to approximately 2500, we expect this pace to remain steady.

Speaker 3: We continue to generate organic growth with our existing agency partners. Our market max tool, which provides our distribution partners with insights into their overall portfolio and identifies target accounts to grow their business with us has been instrumental in generating new high quality business up.

We continue to generate organic growth with our existing agency partners our market match tool, which provides our distribution partners with insights into their overall portfolio and identified target accounts to grow their business with us has been instrumental in generating new high quality business opportunities.

Speaker 3: Finally, our commercial lines, G-Vap expansion plans remain on track. Over the next year, we plan to open the states of Alabama, Idaho and Vermont, with others planned for such a big year.

Finally, our commercial lines geographic expansion plans remain on track over the next year, we plan to open the states of Alabama, Idaho in Vermont with others planned for subsequent years.

Speaker 3: Our new small business platform has been deployed for both commercial auto general liability property workers, comp and other supporting lines of business enhancing the ease and speed of transacting with us in this important market. We also expect to complete a rollout of our new E and S automation platform for general liability property and package business study end of this quarter. Our updated personal lines product and service offerings to compete in the mass affluent market are showing early signs of success.

Our new small business platform has been deployed for BOP commercial auto and general liability property workers' comp and other supporting lines of business enhancing the ease and speed of transacting with us in this important market.

We also expect to complete the rollout of our new E&S automation platform for general liability property and package business by the end of this quarter.

Our updated personal lines product and service offerings to compete in the mass affluent market are showing early signs of success.

Speaker 3: Finally, we continue to invest in and build out our digital customer offerings. Adoption of our self-service platform and my selected mobile app continue to accelerate. These platforms, along with our ongoing focus on expanding our value-added service offerings, should generate future retention.

Finally, we continue to invest in and build out our digital customer offerings adoption of our self service platform and my selected mobile App continued to accelerate these platforms along with our ongoing focus on expanding our value added service offerings should generate future retention packages.

Speaker 3: The remainder of 2022, we are confident about our ability to sustain superior financial performance. We will stay true to our historically prudent and disciplined approach to generating consistent and profitable growth. With that, we will open the call for questions. Operator.

The remainder of 2022, we are confident about our ability to sustain superior financial performance, we will stay true to our historically prudent and disciplined approach to generating consistent and profitable growth.

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

Yes.

Thank you we will now begin the question and answer session I would like to ask a question you May press star followed by the number one please on mute your filing and record your name and company name KD win from Ted Your name and company name is required to induce your question to withdraw your question Press Star followed by the number of students at Gen speakers there are questions on queue.

Speaker 1: Thank you. We will now begin the question and answer session. If you would like to ask the question, you may press star followed by the number one. Please unmute your phone and record your name and company name clearly when prompted. Your name and company name is required to introduce your question. So with your request, you may press star followed by the number.

Speaker 1: As Jan speakers, there are questions on Q. We had a first question from the line of Mike Zering's key, Wall Free Search. You may ask her.

We had the first question from the line of Mike <unk> of Wolfe Research you May ask your question.

Hey, good morning.

Speaker 5: Hey, good morning. Good morning. Good morning. Good morning. First question, you know, I was hoping to further unpack.

Great.

Good morning first question.

I was hoping to further unpack.

Speaker 5: increase in the expected loss trend from 4 to 5.

Yes.

The increase in the expected loss trend.

Four to five.

Speaker 5: And I also, maybe I'm wrong, I believe in the past years it's been in the threes, but you can correct me if I'm wrong. And now maybe you can kind of further unpack and you gave out a color, John , is it being driven by...

And maybe I'm wrong I believe in it.

Past years, it's been in the threes, but you can correct me if I'm wrong and now maybe you can kind of further unpack.

And you gave a lot of color John .

Is it is it being driven by.

Speaker 5: Property or is it just a mix of a number of things? So there's some good guys and some bad guys And you know, we can we can see some of your lines are running kind of hot

Property or is it just a mix of a number of things. So there are some good guidance and bad guys.

We can see some of your lines.

Our running kind of hot.

Commercial auto, but maybe that's just a separate question, but maybe we can start there. Thanks.

Speaker 5: commercial auto, but you know, maybe that's a separate question, but maybe we could start there.

Yeah. Thanks, Mike I. Appreciate the question. So there are a lot of pieces to this and I think you've highlighted a couple of them. The first thing I will say, though is I think it's always important when we talk about loss trends have separate historical loss trend, which is the actual changes in frequency and severity of looking back to prior accident years from expected loss trend.

Speaker 3: Yeah, thanks, and appreciate the question. So there are a lot of pieces to this, and I think you highlighted a couple of them. The first thing I'll say though is, I think it's always important when we talk about lost trend to separate historical lost trend, which is the actual changes in frequency and severity, looking back to prior accident years from expected lost trend.

Speaker 3: And just to clarify that point, our expected lost trend, which we're saying is 5% and that's embedded in the 2022 lost tick that underlies the guidance that Mark took you through.

And just to clarify that point, our expected loss trend, which we're saying is 5% and that's embedded in the 2022 loss pick that underlies the guidance that Mark took you through it.

Speaker 3: is it a reflective of some shift in our pattern looking backwards? So our historical lost trend, when you actually, for the last couple of years, have been running about four percent.

This is reflective of some shift in our pattern of looking backwards. So our historical loss trend, which actually it for last couple of years have been running about 4% just a just a shade under 4%. If you look back a few more years. It was it was in the 3% range, where we would move that up over the last couple of years before and now it's 5% on a go forward basis.

Speaker 3: just to share under 4%. If you look back a few more years, it was in the 3% range, but we had moved that up over the last couple of years to 4 and now it's 5% on a go forward basis. But again, I want to stress that's more of forward looking assumption on our part in terms of directional shift driven by three primary factors. And we've pointed to these in the prepared comments and in prior discussions.

But again I want to stress that's more forward looking assumption on our part in terms of directional shift driven by three primary factors and we pointed to these in the prepared comments and in prior discussions number one is economic inflation and you've alluded to that impacting some lines more so than other number to us.

Speaker 3: Number one is economic inflation, and you've alluded to that impacting some lines more so than others. Number two is social inflation, and embedded in our assumption here in moving from four to five is that some of the social inflationary trends, which are more of a driver on the liability lines that existed pre-pandemic, are going to emerge.

Social inflation and embedded in our assumption here and moving from four to five is that some of the social inflationary trends, which are more of a driver on the liability lines that existed pre pandemic are going to emerge and then the third consideration I would put us more in the uncertainty category is the fact that we all in the.

Speaker 3: And then the third consideration, and I would put this more in the uncertainty category, is the fact that we all in the industry have the last two prior accident years, which certainly play a role in our 22 pick, that present very different frequency and severity patterns that we've seen historical.

Industry has the last two prior accident years, which certainly play a role in our in our 'twenty to pick that present very different frequency and severity patterns that we've seen historically now I'm assuming like most companies. We've got a lot of discipline around making wausau collections, but the first thing we do.

Speaker 3: Now I'm assuming like most companies, we've got a lot of discipline around making washer extra collections. But the first thing we do is take the last, call it four or five accident years.

Is take the last call it four or five accident years, bringing us the present rates, which accounts for the cumulative impact of the rate earned over the last several years and then also fully trend nodes for actual changes in severity and frequency and that's why it's so important and you hear us always emphasize this point.

Speaker 3: Bring into present race, which accounts for the cue ill of impact of the rate earns over the last several years. And it also fully trebles for actual changes in severity and frequency.

Speaker 3: And that's why it's so important. And you hear us always emphasize this point. If you look back over the long term, we've been matching or exceeding our rate level relative to lust.

If you look back over the long term, we've been matching or exceeding our rate level relative to loss trend.

Speaker 3: So that's your starting point for your upcoming Los ratio selection by trending and on leveling and then lending those last five accent years. We then roll that forward by adding to it our expected trend of 5% and you can make your own view as to whether or not that's conservative or aggressive as well as our expectation for earned rate well.

So that's the that's your starting point for your upcoming loss ratio selection by trending on labeling and then blending those last five accident years. We then roll that forward by adding to our expected trend of 5% and you can make your own view as to whether or not that that's conservative or aggressive as well as our <unk>.

Expectation for earned rate level.

Speaker 3: So I think understanding the two dynamics of historical versus expected lost trend is an important consideration.

I think understanding the two dynamics of historical versus expected loss trend is an important consideration.

Speaker 3: I think it's also important to put the economic inflation in the context of where it impacts the business, most significantly, and where it doesn't. And I know I think I've been referenced to this in the prepared comments.

It's also important to put the economic inflation in the context of where it impacts the business most significantly where it doesn't.

I think I made reference to this in the prepared comments when you look at economic inflation, we're not seeing.

Speaker 3: When you look at economic inflation, we're not seeing a meaningful move in medical inflation. And medical is where you really have the bigger leveraging effect.

Meaningful move and medical.

Inflation and medical is where you really have the bigger leveraging effect, but that has been remaining relatively stable call. It into three maybe mid 3% range, it's really driven more so by what we're seeing in the building side of things and the used cars.

Speaker 3: But that has been remaining relatively stable, call it in the three, maybe mid-three percent range. It's really driven more so by what we're seeing in the building side of things and the use cars and bodywork.

They work, but you also have to put that in context. So let me just let me just focus on auto for a second and remember all of this discussion around severity and inflationary impacts on severity has to be considered in the context of the <unk>.

Speaker 3: But you also have to put that in context. Let me just focus on an auto for a second. And remember, all of this discussion around severity and inflationary impacts on severity has to be considered in the context of the frequency dynamic that we all still see, which is frequencies while they bounce back compared to 20.

Frequency dynamic that we all still see which is frequencies, while they bounce back compared to 'twenty.

Speaker 3: at least in our portfolio, still remain a little bit below pre-pandemic levels. So you still have a lower frequency than you do pre-pandemic, which provides some bit of an offset.

At least in our portfolio still remain a little bit below pre pandemic levels. So you still have.

Lower frequency than any do pre pandemic, which provides some bit of an offset to the economic inflationary impacts on the severity side, but if you focus on let's just let's stay on auto physical damage, which I know is.

Speaker 3: to the economic inflationary impacts on the severity side. But if you focus, and let's just, let's say on a lot of physical damage, which I know is a really important consideration. First of all, you want to put that in the context of what percentage of your overall loss, and the open losses of that makeup. And for us, first of all, physical damage is about 2% of our premium and probably about the same level in terms of ultimate lost hours. And commercial auto-biscuit-

Really important consideration first of all you want to put that into context of what percentage of your overall loss net ultimate losses does that make up and for us personal auto physical damage is about 2% of our premium and probably about the same level in terms of ultimate loss and commercial auto physical damage is about six five.

Speaker 3: is about 6.5%. First of all, in total, it's about 24% of premium, physical damage about 6.5%. So think about it in terms of a little bit of 110% altogether of total or premium and airport total earn losses. So that inflationary impact, which doesn't apply to 100 cents on the dollar for losses, is in a much smaller context in terms of the overall portfolio.

<unk> commercial and <unk>.

Total is about 24% of premium physical damage of about six 5%. So think about it in terms of a little bit under 10% altogether total earned premium and therefore total earn losses, so that inflationary impact which doesn't apply to a 100 cents on the dollar for losses is it a much more context in terms of the overall portfolio.

So again I know I spent a lot of time and it can actually go into a lot more detail. If you want on some of the auto lines, but thats really how you want to put this in context.

Speaker 3: So again, I know I spent a lot of time and it can actually go into a lot more detail if you want on some of the other lines, but that's really how you want to put this in context.

Speaker 3: We view the 4 to 5% as a reasonable expectation going forward. And we think that other companies might not be that meaningful in their movement, but the trends we're pointing to that are having us increase our forward loss trend by a point are pretty universal for everybody in our business.

We view the 4% to 5% is a reasonable expectation going forward.

Think that other companies might not be that meaningful in their movements, but the trends worth pointing to that are having us increase our forward loss trend by a point are pretty universal for everybody in our business. So I'll pause there and happy to follow up any area that like that you watch it towards more and more because I think it's an important topic.

Speaker 3: So I'll pause there and happy to follow up on any area that like that you watch it to explore more because it's an important topic.

Speaker 5: Okay, yeah, no, definitely. And that was helpful. Maybe, would some of the upwards movement and trend, is it due to maybe selectives overweight?

No definitely and that was helpful. Maybe.

Good.

The the upward movement in trend as it is due to maybe selective overweight.

Speaker 5: in commercial auto or kind of in more kind of blue colored trades and trying to think of this is more specific to this elective. I know that's not just maybe that's my job to figure that out, but just maybe if you could talk maybe it's but if it's certain lines specifically being there driving.

In commercial auto or kind of in more kind of blue collar trades I'm, just trying to think of this as more specific.

To selective I know, that's maybe that's my job to figure that out, but just maybe if you could talk maybe a little bit.

If it's certain lines, specifically being that are driving this.

I don't I don't know that I would point to certain lines auto is certainly one that we have a little bit of a higher expected forward trend, but I will say that we view the liability side as much as the physical damage side from that perspective.

Speaker 3: You know, I don't know that I would point to certain lines. Auto is certainly one that we have a little bit of a higher expected forward trend. But I will say that's, we view the liability side as much as the physical damage side from that perspective.

Speaker 3: But I will say when it comes to building out our expected loss trend, yes, there's an influence from your historical loss trend, but then we take the component parts of the CPI.

I will say when it comes to building out our expected loss trend, yes, theres an influence from your historical loss trend, but then we take the component parts of the CPI and break those down very specifically by line of business and how they impact each individual line and that gets embedded into our expected loss trend so to that.

Speaker 3: and break those down very specifically by line of business and how they impact each individual line. And that gets embedded into our expected loss trend. So to that extent, you will see a line of business distributions that might vary from one company to another when you think about their percentage of property to liability writings, when you think about their auto and specifically their auto liability to auto fiscal damage.

That extent you will see a line of business distributions that might vary from one company to another when you think about their percentage of property to liability writings. When do you think about their auto and specifically the auto liability to auto physical damage. Those ratios are the relative premium volumes will move.

Speaker 3: Those ratios are those relative premium volumes will.

Speaker 3: move the number around. But I, you know, generally speaking, those inflationary impacts are going to impact everybody, but the mix of business might vary.

Move the number around but.

Generally speaking those inflationary impacts are going to impact everybody, but the mix of business Mike Berry.

But there is I would say there's nothing in our our portfolio that would currently suggests that the forward trend expectation for us should be any different than anybody else.

Speaker 3: But I would say there's nothing in our art portfolio that would currently suggest that the forward trend to expectation for us should be any different than anybody else.

Okay. That's helpful.

Yes.

Speaker 5: I think shifting gears quickly to the investment guidance.

Maybe shifting gears quickly to the investment guidance.

Speaker 5: public from market. I believe the implied yield on alternatives is...

Probably for Mark.

I believe.

Implied yield on alternatives.

<unk>.

Speaker 5: It feels a little, maybe you can talk about why the guide on the alternative yield guide is kind of lower than peers of the industry. In terms of, you know, I think most peers are guiding to high singles, maybe even some low doubles.

It feels a little bit maybe you can talk about what why the guide on the alternative yield guidance is lower than peers or the industry.

In terms of I think most peers are guiding to high.

High singles, maybe even some.

Low doubles.

Speaker 4: Yeah, good question Mike. I just said to the level said, 2021 was a record year for us in terms of off the tax rate, that's when they come at 263 million, including 93 million about the tax rate that investment they come from the hotel to the portfolio. We've now delivered six consecutive goals of really strong returns from all.

Yes, good question, Mike I just to level set.

2021 was a record year for us in terms of after tax net investment income of $263 million included $93 million of after tax net investment income for the alternative portfolio. We've now delivered six consecutive quarters of really strong returns for volt.

And while we have great expectations for the portfolio to continue to produce very strong and attractive returns for our shareholders. We do think.

Speaker 4: And while we have great expectations for the portfolio to continue to produce very strong and attractive returns for us in our shell, as we do think that the strong returns we've enjoyed for the last six quarters will refer back to longer term expectations.

The strong returns we have enjoyed for the last six quarters or go back to longer term expectations.

Speaker 4: So our guidance for 2022 $200 in 20 after tax fraud turn of this, that is an after tax number. If you would have grossed that up to a pre tax number and applied an 8% return for alternatives for 2022. And the way to think about that is we probably think that portfolio, which is a mix of private equity, private credit, real assets, strategies, long-term run between about 8% and 10%.

Our guidance for 2020 to 200 all in 'twenty.

After tax for alternatives that is an after tax number.

The gross that up.

To a pre tax number it implies an 8% return.

Alternatives for 2022.

And the way to think about that as we probably think that portfolio, which is a mix of private equity private credit and real asset strategies long term will run between about 8% to 10%.

Speaker 4: We will have the benefit of a healthy capital markets returned from Q4 coming through Q1, but if you were to cut the quarter off today, for Q1 coming through Q2, we've had tremendous amount of volatility.

We'll have the benefit of a healthy capital markets returned from Q4 coming through Q1, but if you were to cut the quarter off today for Q1 coming through Q2, we had a tremendous amount of volatility.

Speaker 4: And when you think about public equity, market expectations, the transition to a higher, a transparent environment.

When you think about public equity market expectations, the transition to a higher interest rate environment slow economic activity likely slow a corporate revenue corporate.

Speaker 4: slower economic activity, likely slower corporate revenue, corporate profits, lower valuation.

<unk> slow valuations, we do think it's appropriate to be kind of on the lower end of the range in terms of our expectations for a while.

Speaker 4: We do think it's appropriate to be kind of on the lower end of the range in terms of our expectations for our alternative portfolio for 2022. So again, bad and 8% return is the expectation built into the guy. So I'm probably not providing some context.

Alternative portfolio for 2022, so again about an 8% return.

Expectations built into the guidance hopefully that provides some context.

Great. Thank you.

Speaker 1: We have the next question from the line of Mayor Shields of KBW, Yumi Astor,

We have the next question from the line of Mayor Shields of K B W. You May ask your question.

Speaker 6: Great, thanks. I really only have one question and I'm asking you if in the context of what's already been a very powerful way.

Great. Thanks, I really only have one question and I'm asking this in the context of what's already been a very thoughtful explanation.

Speaker 6: But I'm trying to understand why you're not assuming the Colour 5% average lost trend on earlier acting years if they subject to the same external cattle

But I'm trying to understand why youre not assuming the call it 5% average loss trend on earlier accident years, if the subject to the same.

External catalyst.

Well I guess, you really want to think about how much of that is <unk>.

Speaker 3: subjected to the same catalyst versus how much is in a lot of these economic and completionary items because medical is not the driver, doesn't really impact your reserve portfolio from the same perspective. And I think that's the...

Subjected to the same catalysts versus how much is in a lot of these economic inflationary items because medical is not the driver doesn't really impact your <unk>.

Our portfolio from the same perspective.

And I think that's the biggest change that would be different on a forward basis, which is more of a shorter tail line impact as opposed to any any meaningful impact on the reserve portfolio.

Speaker 3: that would be different on a forward basis, which is more of a sure tail line impact as opposed to any meaningful impact on the reserve portfolio. So, and we evaluate every prior accident year, and you can see where the movement has been coming from, and the 20 and 21 accident years, we have not acted on. And when I say that, there was clearly some frequency benefits, but this question around severity.

We evaluate every prior accident year and you can see where the movement has been coming from and the 2020 one accident years, we have not acted on.

When I say that there was clearly some frequency benefits, but this question around severities.

Speaker 3: has once led us to maintain those loss selections in both the 2021 accident years. So you can say our stance relative to increasing severity expectations and not reacting to the frequency drops in 2021. It may be somewhat reflecting of view that some of those inflationary considerations are driving some of the are a big holiday, so chances that fast forward CRC results can be at least 1 in 6 per edition.

One is whats led us to maintain those loss selections and bulk of 2021 accident year. So you could say our stance relative to increasing severity expectations and not reacting to the frequency drops in 2020 , one may be somewhat reflecting our view of that.

Some of those inflationary considerations are driving some of the severity of the more recent accident years.

Speaker 3: But again, those are all contained within our 20 and 21 accident year loss picks, which we continue to remain very comfortable.

But again those are all contained within our 2020 , one accident year loss picks, which we continue to remain very comfortable with.

Speaker 6: No, that's all of the negative question. I just really want to understand the thinking.

No. That's helpful with regard to your question I, just really wanted to understand the thinking thank you.

We have the next question from the line of Greg Carter of Bank of America. Your line is now open you can ask your question.

Speaker 1: We have the next question from the line of Grace Carter of Bank of America. Your line is not open. You can answer.

Hi, everyone.

Speaker 7: Hi everyone, thinking about the combined ratio guidance for this year paired with the Outlook for a flat extens ratio. And it applies a little bit of underlying loss ratio deterioration. I mean we talked about the commercial loss trend.

Thinking about combined ratio guidance for this year paired.

Paired with the outlook.

That expense ratio.

It plays a little bit of underlying loss ratio deterioration I mean, we've talked about the commercial loss trends.

Speaker 7: There's expectations for pressure, industry wide and personal lines, but I wonder if you could just walk us through a little bit the contribution by segment to that potential deterioration and the loss ratio and just kind of how to think about that in the context of the ongoing pricing increases on the commercial line factor.

There is an expectations for pressure industry wide in personal lines.

I was wondering if you could just walk us through a little bit the contribution by segment to that.

The deterioration in the loss ratio and just kind of help us think about that in the context.

The ongoing pricing increases on the commercial line side.

So Greg this is mark maybe I'll start and John can suddenly jump and one thing I would just highlight it as an expectation for the year and as I mentioned our results. So the industry results and have a little bit of volatility.

Speaker 4: So, Grace, this is Mark, maybe I'll start a chunk in certainly a chunk. And one thing I would just highlight is, it is an expectation for the year. And as I mentioned, our results, sort of the industry results, can have a little bit of volatility to represent kind of our base case and expectations going into 2022. If you look back at the last couple of years in 2020, we had a underlying combined ratio of expectation of a 91.5, and we still have a 90.1.

Just kind of a base case and expectations going into 2022.

You look back at the last couple of years in 2020, we had a underlying combined ratio expectation of a 91 five but when you look at 91.

Speaker 4: Last year, 21, we had an underlying combined ratio of guidance of 91 and we delivered 90.1. So we have come in better than expected for the last couple of years. But the last couple of years have been unusual, given that pandemic-driven frequency beneficial and how that comes through the results.

Last year 21, we had an underlying combined ratio guidance of <unk> 91, and we delivered 91, so we'd have to come in better than expected for the last couple of years, but the last couple of years.

Have been unusual.

Given the pandemic driven frequency benefits.

<unk> results.

Speaker 4: As we look to 2022, you're right. If you go from 90.1 to 91 with a flat expense ratio, it implies 90 basis points of loss ratio of deterioration here on you. And I would attribute almost all of that to non-count property loss.

We look to 2022 right. If you go from 91 to 91 with a flat expense ratio. It implies 90 basis points of loss ratio deterioration year on year, and I would attribute almost all of that to non cat property losses.

Speaker 4: So we've had two years now where the non-cap property losses have been much lower than expected.

We've had two years now with a non cap property losses have been much lower than expected. We expect those to go back to pre pandemic levels. So thats really the majority of the increase there's always other moving parts, we have the rate versus trend.

Speaker 4: We expect others to go back to pre-pandemic levels. And that's really the majority of the increase. There's always other moving parts. We have the rate versus trend. We have the underrated mix and quaint benefits. We have this widely-firm and great insurance marketplace and puts some pressure on mass ratios.

We have the underwriting mix in claims benefits we have.

Slightly further great insurance marketplace to put some pressure on loss ratios, but non cap property is the biggest contributor to the movement in the loss ratio year on year.

Speaker 4: Non-cal property and the biggest contributor to the movement and mass ratio you are on here.

Speaker 3: So just to clarify the point here, reinforce the point marks, making it's very similar to how you think about cow loss expectations. We take a longer term view in terms of non-cab property. And even if we have a good year or two good years and a relative to expectations, we're generally going to look at longer term averages and set that non-cab loss expectation where we think it should be based on historical patterns. So.

So just to clarify.

Our final point or reinforce the point Mark's, making its very similar to how you think about catalysts expectations, we take a longer term view in terms of non cap property and even if we have a good year or two good years in a row relative to expectations were generally going to look at longer term averages and set that that non cat loss expectation, where we think it should be.

Based on historical pattern. So that's not a statement that we think non cap property losses are going to deteriorate, but we just think about that in a longer term views of caution just reacting to one year that was better than expected or in this case two years that were better than expected.

Speaker 3: That's not a statement that we think non-cap property losses are going to deteriorate, but we just think about that in a longer term, the US of course, is just reacting to one year that was better than expected, or in this case, two years ever better than expected.

Thank you.

Speaker 7: I'm thinking about the pivot towards math affluent and the personal line segment. It feels like maybe the new business that you're looking at adding as the year goes on probably has a higher liability component than property component versus the older business. So I'm just kind of wondering how you expect plus cost in that segment to evolve in that.

Thinking about the pivot towards mass affluent in the personal lines segment.

It feels like maybe.

The new business that you are looking at adding as the year goes on probably has a higher liability component than property component versus the older business.

I'm just kind of wondering how you expect loss costs in that segment sort of evolved in that context.

Hi.

Speaker 3: You know, it's a great question. I don't actually see a big shift there because I mean, the fact of the matter is are your property values on both you want to and the home side are going to be moving higher as well. So there might be a little bit of retire and liability limits, but you're going to see the same thing on the property limits side of the house so that we don't anticipate a meaningful shift from that perspective.

It's a great question I don't actually see a big shift there because I mean, the fact of matter is arent your property values.

Both the auto and the home side are going to be moving higher as well so there might be a little bit drift higher in liability limits by youre going to see the same thing on the property side of the house.

So we don't anticipate a meaningful shift from that perspective.

Thank you.

Speaker 1: We have the next question from the line of Scott Halenak of RBC Capital Markets. You may ask her question and your line is now.

We have the next question is from the line of Pat.

RBC capital markets you May ask your question. Your line is now open.

Speaker 8: Hi, good morning. Just wanted to ask first on the E&S premium growth, which, you know, has been strong for a while now. And I'm assuming that you're getting a lot more quote activity, probably expansion with your distribution partners. But is there really just a pretty big shift in the way you're viewing E&S? And you're obviously coming out for record year for that business. Are you just more comfortable in expanding that kind of over the longterm, you know, based on the favorable trends?

Hi, good morning.

I just wanted to ask first on the E&S premium growth, which.

It has been strong for a while now.

Assuming that you are getting a lot more quote activity.

Probably expansion with your distribution partners, but is there is there are really just a.

A pretty big shift in the way, you're viewing and asking your you're obviously.

Obviously coming off a record year for that business.

More comfortable and expanding that kind of over the long term.

Just on the on the favorable trends.

Speaker 3: Yeah, we like the business, and as Mark indicated, we've hit our stride and are delivering really strong results when you look back over our track record since getting into that business about 10 years ago. What you see, I mean, is clearly a pickup in both new business and even strong retentions, and business in DNS generally retains at lower levels. But even in that context, retentions are stronger. We haven't meaningfully shifted.

Yes.

We like the business and as Mark indicated we've hit our stride and are delivering really strong results. When you look back over our track record since getting into that business about 10 years ago. What you see is clearly a pickup in both new business and even stronger retention and business and DNS generally retains at lower levels, but even in that context.

Retentions are stronger.

Haven't meaningfully shifted our underwriting appetite and the mix of business, we're seeing pretty consistent I think we're hitting our stride relative to agency relationships I think we're hitting our stride relative to our processes and the underwriting platforms that we continue to develop and introduce and I.

Speaker 3: Our underwriting appetite and the mix of business we're seeing is pretty consistent.

Speaker 3: I think we're getting our stride relative to agency relationships. I think we're getting our stride relative to our processes and the underwriting platforms that we continue to develop and introduce.

Speaker 3: And I think it's better execution. Do we think there are opportunities to potentially expand? We do, but we're going to still stick to our knitting gear, which is a longer-limits profile business.

I guess, just better execution, and we think there are opportunities to potentially expand we do but we're going to still stick to our knitting here, which is a lower limits profile business sort of lower hazard within the E&S context, and we think the opportunities continue to be there and continue to be there and meaningful way.

Speaker 3: sort of lower hazard within the ENS context.

Speaker 3: And we think that the opportunities continue to be there and continue to be there a meaningful way.

Speaker 3: With regards to longer term, we still view this as a business we'd like to be and that call it up to 15% of total premium. We don't want it to be our predominant business. We think we've got a very unique set of competitive advantages and a very unique market position to stay commercial. And some of those skills are able to be leveraged.

With regards to longer term, we still view this as a business we'd like to be in that call. It up to 15% of total premium we don't want it to be our predominant business. We think we've got a very unique set of competitive advantages in a very unique market position, our standard commercial and some of those skills are able to be leveraged to help us.

Speaker 3: to help us in the EMS space. So we love the business. We think we've got a good growth path in front of us.

In the E&S space. So we love the business, we think we've got a good growth path in front of us, but we're not just out there chasing different types of opportunities that we don't have experience in.

Speaker 3: But we're not just out there chasing different types of opportunities that we don't have experienced. And we're really growing in the areas that we feel like we've got a lot of confidence, income and underwriting and appricing prospects.

We're really growing in the areas that we.

We feel like we've got a lot of confidence in from an underwriting and a pre.

<unk> perspective.

Okay.

Speaker 8: Sounds like it's pretty similar thinking to what you're talking about before just just kind of

It sounds like it's pretty similar thinking to what Youre, what youre talking about before just just kind of pushing.

Speaker 8: pushing full steam ahead. And then the personal line side, I'm sure I'm assuming in personal all your steam and seeing the same trends everyone else's on the frequency and severity. Are there any plans to take significant rate actions there? I noticed that the...

Pushing full steam ahead.

And then the.

The personal lines side.

I'm sure I'm, assuming in personal auto youre, saying that youre seeing the same trends everyone else is on the frequency and severity are there any plans to take significant rate actions there I noticed that the.

Speaker 8: The personal lines or real premiums or increases are up 1.1% for the quarter. And I was wondering if you might expect to take further riot actions on those in 2022.

The personal lines renewal premiums.

<unk> were up one 1% for the quarter and I was wondering if.

You might expect to take for the rate actions on those in 2022.

Speaker 3: I think when you look at our profitability in the personal online, and this is not just a reflection of some shippled in the last couple of quarters with regard to frequency and severity, we have want to do for profitability.

I think when you look at our profitability in the personal auto line and this is not just a reflection of some shift in the last couple of quarters with regard to frequency or severity. We have work to do from a profitability perspective.

We do think there are some some underwriting actions that will drive some of that but there is clearly a racy there and we expect to begin to increase the rate level on that business on a go forward basis.

Speaker 3: We do think there are some underwriting actions that will drive some of that, but there's clearly a rate need there, and we expect to begin to increase the rate level on that business on a go-forward basis.

Okay and then.

Speaker 8: The 4 to 5% loss cost inflation change, is that a cross the board? How much of that is personal lines versus commercializes? Is that just a cross the board? I'm just trying to get a sense of the board. You got to.

The 4% to 5% loss cost inflation.

Change is that.

Is that specific is that is that across the board how much of that is personal lines versus commercial lines is that just across the board I'm just trying to get a sense of.

Yes.

That said, that's an all in number and it varies by line of business.

Speaker 3: That's it. That's an all in number. Again, it varies by line of business, and it varies a little bit by segment, but commercial lines is really the primary driver being 80% of our business and commercial lines is right in that five.

There is a little bit by segment, but commercial lines is really the primary driver being 80% of our business and commercial lines is right in that 5% kind of range.

Speaker 3: So it's all lines, commercial lines is a big driver, but think about it in terms of 5% overall.

So it's all lines.

Commercial lines is a big driver, but think about it in terms of 5% overall.

Speaker 8: All right, and I just said one last one, the you got it to the expense ratio being flat for 2022. Marketing quite catch your comments about 2023. Did you?

Yes, okay.

Alright, and I would just add one last one you guided to the expense ratio being flat for 2022.

Marketing quite catch your comment about 2023 did you.

Was there was there a target range that you expect to see improvement for 2023.

Speaker 8: Was there a target range that you expect to see improvement for 2023?

Speaker 4: Yeah, good question Scott. I didn't mention the target. This order though, we put it out there in the Palace, which is the longer term target for us.

Yes. Good question, Scott I didn't mention that target this quarter, but we've put it out there in the policy, which is a longer term target for us.

Which we believe it's appropriate to compete effectively given our mix of business between commercial lines E&S surplus lines.

Speaker 4: which we believe is appropriate to compete effectively given our mix of this between commercial line DNFs and personal line.

Speaker 2: given the current market place is 32.

Given the current marketplaces <unk> and.

Speaker 4: And our plan, as we sit here today, our points to us achieving that target in 2023. So that's the plan as we sit here today and think about all the strategic objectives and growth initiatives we have in place as well as some of the significant efficiency plies we have in place as well. Great.

And our plan as we sit here today points to us achieving that target in 2020, so that's the plan.

You said that today and think about all the strategic.

<unk> objectives and growth initiatives, we have in place as well as some of the.

Significant efficiency plan, we have in flight as well.

Alright, great Thats helpful. Thanks.

Speaker 1: We have the next question from the line up all news, them O Piper Sender. Your line is not open. You can ask her questions.

We have the next question from the line up Paul Newsome of Piper Sandler. Your line is now open you can ask your question.

Speaker 9: Good morning. Just based upon the emails, it seems like folks are pretty concerned about the upkick and the flight sensation number. You said this a million times, but I think towards reiterating, when you have enough that increased view in

Good morning.

Based upon the email to get them.

It seems like folks are pretty concerned about the uptick in <unk>.

Well.

Sensation.

Number.

Just you said this many times moving towards reiterating.

When you have an increase in.

Speaker 9: in claims inflation that goes directly into your pricing mile, right? So you would expect all things being equal to offset that.

In claims inflation that goes directly into your pricing model right. So you would expect all things being equal to offset that.

Speaker 9: over time. So it would not necessarily mean a margin to crease just because you have a more aggressive view on what's closed inflation. I think you said that in the panel.

Overtime, so it would not necessarily mean a margin.

Just because you have.

More aggressive view on claims inflation.

You said that in the pattern.

Yes.

Yes.

Speaker 3: Yep, thank you. I appreciate the question. And I would say we point to our long term history. This is not just a recent phenomenon, but that has always been our philosophy, which is depending on where our margins are relative to our target and what our outlook for lost trend on a forward basis is our pricing indications and pricing targets are set according.

Yes. Thank you I appreciate the question and I would say we point to our long term history. This is not just a recent phenomenon, but that has always been our philosophy, which is depending on where our margins are relative to our targets and what our outlook FERC for loss trend on a forward basis is our pricing indications and pricing targets are set accordingly.

And that continues to be the case and I just want to just go back to Mark's point, because I think.

Speaker 3: And that continues to be the case. And I just want to just go back to Mark's point because I think this really re-emphasizes the important consideration here, which is if you look at the roll forward from 21 underlying to 22 underlying, it's really just the resetting of non-cap property based on long-term averages that is creating that what appears to be a movement a little bit higher in the underlying by a little bit under a point.

Really reemphasize the important consideration here.

If you look at the roll forward from 'twenty, one underlying to 'twenty two underlying it's really just the resetting of non cap property is based on long term averages that is creating that what appears to be a movement a little bit higher in the underlying by a little bit under a point.

Speaker 3: which would suggest that our expectation is that lost trend for a basis and written rate or early on a forward basis are relatively comparable.

Which would suggest that our expectation is that loss trend on a forward basis and rig rates earn rate on a forward basis are relatively comparable so you are keeping that underlying.

Speaker 3: So you're keeping that underlying the same when you take out that resetting of the non-CAP property to the longer-term average. So I think it's actually embedded in there. And I understand that the reaction to going from 4% to 5%, I think the key point in all of this is all of these losses.

Shame when you take out that resetting of the non cap property to the longer term average so I think it's actually embedded in there and I understand that.

The reaction to going from 4% to 5% I think the key point in all of this is.

All of these loss trends are manageable as long as you identify them and recognize them and respond to them and I think our our history over a long time now should show that we'd get out in front of these things and we price for it and we focus on delivering very stable and very strong margins.

Speaker 3: As long as you identify them and recognize them and respond to them. And I think our history over a long time now should show that we get out in front of these things and we price for it and we focus on delivering very stable and very strong margins on a consistent basis over the long term. And that philosophy will continue. We're highly transparent about how we think.

On a consistent basis over the long term and that philosophy will continue we're highly transparent about how we think.

Speaker 3: and how we make our loss ratio selection. Sometimes that transparency might, you know, create a negative reaction, but we think it's still the right way for us to interact with our shareholders.

And how we make our loss ratio selection, sometimes that transparency.

Create a negative reaction, but we think it's still the right way for us to interact with our shareholders. So.

Speaker 9: So I appreciate the question and the opportunity to clarify that point. Great. Not actually an actual question. One of the things I thought was curious, the least corner so far, is that as we're listening to the various college calls.

So I appreciate the question and the opportunity to clarify that point great.

It's actually been an actual question.

Yeah.

One of the things Thats all I was curious leases quarter. So far is that we are listening to the various conference calls.

Speaker 9: You're seeing a fairly wide range of views on whether or not, pricing is getting better in Warrers' Cup, with Brian Brown saying it's bad and going down and Gallagher saying it's up. And so I'm just curious from your perspective, because I know you're pretty thoughtful.

Youre seeing a fairly wide range.

Views on whether or not.

Pricing is getting better in workers' comp.

Brian Brown, saying, it's bad going down in Gallagher staying it's up.

So I'm just curious from your perspective, I know you will be thoughtful about this.

Speaker 9: What might be the characteristic of the market today, where you would get this sort of different view on Gorker's comp pricing, and how would that sort of squaring with your view?

What what might be the characteristic of the market today, where you would get the sort of different.

Do you.

Workers' comp pricing and how would that sort of square with your view.

View.

Yes, I think.

Speaker 3: Yeah, I think the one big type of difference in views might be geographic concentrations. So what I can't tell you, I mean, our rate on an all-in basis for comp has been running right around you.

One of the big driver of difference in views might be geographic concentrations.

I can't tell you and you are right on an all in basis for comp has been running right around Europe .

But I think you also want to look at what is the impact.

Speaker 3: But I think you also want to look at what is the impact.

Speaker 3: on a market-wide basis of the final loss cost changes by the NCCI and the various state rating bureaus. And I'm going to give you rough numbers.

On a market wide basis of the final loss cost changes by the NCI and the various state rating bureaus and I'm going to give you a rough numbers.

Speaker 3: So don't quote me that specific. But if you look back in 21, in the space that we're in for the entire market, the impact of those changes were in the five to 6% negative.

So it all across.

Of course these are specific.

But if you look back in 'twenty one.

And the space that we're in for the entire market the impact of those changes were ended up 5% to 6% negative range.

Speaker 3: For the finalings for 22 by those same euros that have been implemented at this point, it's about 200 basis points lower.

Firstly filings for 'twenty two by those same euros that has been implemented at this point, it's about 200 basis points lower so more negative in 'twenty two than it was in 'twenty. One. So that's the context in terms of loss cost changes there are negative and are slightly more negative.

Speaker 3: So more negative in 22 that was in 21. So that's the context in terms of loss.

Speaker 3: They're negative and they're slightly more negative than 22 than they were in 21. Now again, that's only one pricing consideration. Clearly, you have individual scheduled credits and debits based on the qualities of the account, individual account, and your expectations of performance of that account, which is how you wind up generating your ultimate rate change. And as we indicated for us, it was zero in 2021.

In 'twenty two than they were in 'twenty. One now again, that's only one pricing consideration clearly you have individual scheduled credits and debits based on that the qualities of the account individual account and your expectation for performance of that account, which is how you wind up generating ultimate.

Rate change and as we indicated for US It was zero in 2021, so that would suggest that through 'twenty, two youre actually going to see a little bit more deterioration in comp pricing based purely on loss cost filings again theres more to it than that and those are but those are the dynamics that everybody has.

Speaker 3: So that would suggest that through 22, you're actually gonna see a little bit more of deterioration and comp pricing based purely on lost cost fireworks. Again, there's more to it than that. And those are, but those are the dynamics that everybody is dealing with right now. And again, comp results have been really strong.

Is dealing with right now and again comp results have been really strong.

Speaker 3: We focus on the accident year numbers and when you strip out all the payable development, they're so strong, but they're not strong to the point where you can support a five or six or seven percent rate reduction for another year. And we talk a lot about loss trend and economic inflation and medical has been stable.

We focus on the accident year numbers and when you strip out all the favorable development, they're still strong, but theyre not strong to the point, where you could support a five or six or 7% rate reduction for another year, and we talked a lot about loss trend.

Economic inflation and medical has been stable but.

Speaker 3: But the leveraging effect of an increase in medical inflation for all workers, top writers is meaningful. So you just want to always keep that in mind, you know, a half a point or a point increase in medical inflation does take you the entire reserve of the Tories. So I think that's why we've been fairly conservative in our pricing on COMP. And that's why our growth has been fairly muted in COMP in the last couple of years.

But the leveraging effect of an increase in medical inflation for all workers' comp writers as meaningful. So you just want to always keep that in mind.

A point or a point increase in medical inflation does take the entire reserve inventory. So I think that's why we've been fairly conservative in our pricing on comp and Thats why our growth has been fairly muted in comp in the last couple of years.

Great. Thank you and congrats on the quarter.

Thank you.

Speaker 1: We have the next question from the line of Carol Chimiel of JMP. Your line is now open. You can ask your question.

We have the next question is from the line of Karl <unk> JMP. Your line is now open you can ask your question.

Yes, hi.

Speaker 10: Yes, hi. Just have a simple question. Can you please just give me the breakdown of the cats in the standard commercial?

A simple question can you. Please just give me the breakdown of the cats in the standard commercial please.

Speaker 2: Certainly this is why I can give you that number. So I'm standing commercial lines. So this is for the quarter we had 26.89 if the transfer belongs to the 4.2 points on the combined and that breaks down to 23.6 in commercial property 900,000 in commercial auto and 2.3 million in Bob and that should get you back to the 26.89 in total for the quarter Boat. Perfect

Certainly this is Bob I can give you that number also in standard commercial lines assume this is for the quarter, we had $26 8 million of catastrophe losses of $4 two point.

On the combined and that breaks down to 23 six in commercial property 900000 in commercial auto and $2 3 billion.

Bob.

As you can see back to the $26 8 million in total for the quarter.

Perfect. Thank you that's all.

Thank you.

Once again, everyone to ask a question you May press star followed by the number one record your name and company name clearly win from said 10 accounts here request you May Press Star and then number two once again to ask a question you May press star followed by the number one.

Speaker 1: Once again, everyone, to ask the question you may press star followed by the number one, record your name and company make truly when prompted to cancel your request, you may press star and a number two. Once again, to ask the question you may press star followed by the number one.

Speaker 1: And at this time, speakers, we have the next question from the line of Mike Zyrmsky of Walls Research. Your line is now open. You can ask her question. Hey, great. A couple of...

And at this time speakers we have the next question from the line of Mike <unk> of Wolfe Research. Your line is now open you can ask your question.

Hey, Greg just a couple of follow ups curing.

Curious.

You talked about a.

Speaker 5: Talk about a frequency law during the pandemic.

Frequency law.

During the pandemic.

Speaker 5: Are you seeing that frequency law kind of fade? And is that going away? Is that any data points there? And then I guess just next question, I don't want to make too big of a deal of the loss trend changing from 4 to 5, but does it kind of change your expectation of kind of...

Are you seeing that frequency lull.

Fade and is that is that going away is that.

Any data points there and then I guess just next question I want to make too big of a deal up in the loss trend changing from four to five but just.

Does it kind of change your expectation of kind of.

Speaker 5: pulling off the gas in terms of top line growth in certain areas in the near term.

Pulling off the gas in terms of top line growth in certain.

Areas in the near term.

Speaker 3: So just with regard to frequency, and I think I might have been a passing reference to this earlier, frequencies continue to be a little bit below expected. And I would say pretty much across all lines of business, but not nearly as significantly lower than we saw in 2020.

So just with regard to frequency and I think I might've been a passing reference to this earlier.

Frequencies continue to be a little bit below expected I would say pretty much across all lines of business, but not nearly as significantly lower than we saw in 2020.

Speaker 3: So generally speaking, they'd come back up, but still remain a little bit below what we saw pre-pandemic.

Generally speaking they have come back up but still remain a little bit below what we saw pre pandemic, whether or not that continues I think it's one of the uncertainties that we point to on a go forward basis and I know this this loss trend to increase from 4% to 5% is becoming a focal point and probably are.

Speaker 3: Whether or not that continues, I think it's one of the uncertainties that we point to on a go-forward basis. And I know this, this lost trend, increased from 4% to 5% is becoming the focal point. And probably appropriately so.

Appropriate so that's.

Speaker 3: That's an uncertainty that we factor into that decision.

That's an uncertainty that we factor into that decision because we don't none of us in our business fully understand what a post pandemic environment will look like and that's not just about driving behaviors. Okay. So miles driven have largely come back frequencies have not bounced all the way back probably because.

Speaker 3: because we don't, none of us in our business fully understand what a post pandemic environment will look like. And that's not just about driving behaviors. So, miles driven have largely come back. Frequency and such have not bounced all the way back. Probably because the time of day that the miles or the log is a little bit different.

The time of day that the miles are being logged as a little bit different you could also suggests on the general liability side that the dramatic increase in online shopping might be a more permanent shift. So therefore in store traffic and traffic and parking lots might not be the same as it used to be that might be a <unk>.

Speaker 3: You could also suggest on the general liability side that the dramatic increase in online shopping might be a more permanent shift. So therefore, in-store traffic and parking lots might not be the same as it used to be. That might be a permanent shift that lowers frequencies. And then the question is if frequencies are more permanently lower, what does that mean for severities? And how much of the severity increase was purely driven by the drop-in?

Permanent shifts at lower frequencies and then the question is your frequencies are more permanently lower what does that means for severities and how much of a severity increase was purely driven by the drop in frequencies versus other macro factors.

Speaker 3: versus other macro factors. So I think that's kind of how we think about it, and that's why we put it in more of the uncertain category. And when there's uncertainty, our response would be to build a little bit more into our forward lost trim, which is what we've done.

I think thats kind of how we think about it and that's why we put it in more of the uncertain category and when there is uncertainty our response would be to build a little bit more into our forward loss trend, which is what we've done.

Speaker 3: With regard to your other question, you know, and I mentioned this briefly in the prepared comments, we have a very similar level of discipline on new business pricing and new business reselection as we do on our renewal portfolio. We've got great monitors around that. And at this point, we remain comfortable with what we're seeing coming in relative to new business. I think our history has shown, and there have been lines of business or segments where our growth hasn't been as strong. And those are cases where we don't feel as comfortable with where the pricing is.

With regards to your other question.

Mentioned this briefly in the prepared comments, we have a very similar level of discipline on new business pricing and new business risk selection as we do on our renewal portfolio. We've got great monitors around that and at this point, we remain comfortable with what we're seeing coming in relative to new business I think our history has shown and there have been like.

A business or segments, where our growth hasn't been as strong and those are cases, where we don't feel as comfortable with where the pricing is.

Speaker 3: in order for us to be significant players in that market that will always be our philosophy and I would say continue to be our philosophy going forward

In order for us to be significant players in that market that will always be our philosophy and I would say continues to be our philosophy going forward.

Great. Thank you.

Thanks.

Speaker 1: At this time's speakers, there are no questions on cue, you may proceed.

At this time speakers there are no questions on queue. You May proceed.

Well. Thank you all for participating we appreciate your active engagement as always and if anybody has any follow ups. Please feel free to reach out to Ron. Thank you. Thank you.

Speaker 3: Well, thank you all for participating. We appreciate the active engagement, as always, and if anybody has any follow-ups, please feel free to reach out to Roman. Thank you. Thank you.

And that concludes today's conference. Thank you. So much everyone for joining you may now disconnect and have a great day.

Speaker 1: And that concludes today's conference. Thank you so much everyone for joining. Yumi now disconnect and have a great day.

[music].

[music].

Good day, everyone and welcome to selective insurance group's fourth quarter 2021 earnings call. At this time for opening remarks, and introductions I would like to turn the call over to senior Vice President Investor Relations and Treasurer real hand pie.

Speaker 1: Good day everyone, welcome to selective insurance groups for the quarter 2021 earnings call. At this time for opening remarks and introductions, I would like to turn the call over to Senior Vice President and Vester Relations and Treasurer, Roe Hanpai.

Good morning, everyone and thank you with panel crafting the call on our website selective dot com a replay is available until March six.

Speaker 11: Good morning, everyone. And thank you. We're Thamal Kausting, just call on our website, selective.com. The replay is available until March 6th. We use three measures to discuss our results and business operations. First, we use GAAP financial measures reported in our annual quarterly and current report file with the FEC.

We used <unk> to discuss our results and business operations.

We have a GAAP financial measure as reported in our annual quarterly and current reports filed with the SEC.

Speaker 11: Second, we use non-GAQ operating income and non-GAQ operating return on common equity to analyze trends in our operations. We believe these measures make it easier for investors to evaluate our insurance bill.

Second we use non-GAAP operating income and non-GAAP operating return on common equity like strength in our operations. We believe these measures make it easier for investors to evaluate our insurance business.

Speaker 11: Non-GAP operating income is net income available to common stockholders, excluding the aftertaste impact of naturalized gains or losses on investment, and unrealized gains or losses on equity security.

non-GAAP operating income and net income available to common stockholders, excluding the after tax impact of net realized gains or losses on investments and unrealized gains or losses on equity securities.

Speaker 11: Non-GAP operating return on common equity is non-GAP operating income divided by average common stock of the equity and gap reconciliation to any reference non- GAAP financial measures are in our supplemental investors package found on our website, Inventors page.

non-GAAP operating return on common equity as non-GAAP operating income divided by average common stockholders' equity and GAAP reconciliations to any reference non-GAAP financial measures in our supplemental investor package found on our website investors <unk>.

Speaker 11: Third, we make statements and projections about our future performance. These forward-looking statements under the private security litigation reform asked of 1995. They are not guarantees of future performance and are subject to risk and uncertainty.

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

Speaker 11: We did have three risks and uncertainties, including supplemental disclosure about the COVID-19 pandemic, in detail in our annual quarterly and current reports filed with the SEC. And we undertake no obligation to update or revise any forward-looking statement. Now, I'll turn the call over to John Marcioni, our president and chief executive officer, who will be followed by mask work off our EVP and chief financial officer, John . Thank you, Robert.

Discuss III risks and uncertainties, including supplemental disclosures about the COVID-19 pandemic in detail in our annual quarterly and current reports filed with the SEC and we undertake no obligation to update or revise any forward looking statements now ill turn the call over to John <unk>, Our President and Chief Executive Officer, who will be.

Followed by Mark Wilcox, our EVP and Chief Financial Officer John .

Thank you Ron and good morning.

Speaker 3: A focus my opening remarks on our strong financial operating results then turn to key industry trends and how responding to them. Mark will have to provide additional details on our results for the fourth quarter in the year. And I'll return with a few closing comments before opening the call up to questions.

I'll focus my opening remarks on our strong financial and operating results, then turn to key industry trends and how we're responding to that Mark will then provide additional details on our results for the fourth quarter and the year and I'll return with a few closing comments before opening the call up to questions.

Speaker 3: 2021 marks are eight consecutive year of double digit operating hour.

2021 marks our eighth consecutive year of double digit operating Roe.

Speaker 3: This track record of consistently strong performance is matched by very few when we're in this.

This track record of consistently strong performance is matched by very few in our industry.

Speaker 3: We're proud of this achievement and we're pleased by Ann Best's upgrade of our financial strength rating to A-plus.

We're proud of this achievement and we're pleased by am best upgrading of our financial strength rating to a plus.

Speaker 3: This upgrade is a testament to our excellent financial position and consistent superior operating performance.

This upgrade is a testament to our excellent financial position and consistent superior operating performance.

Speaker 3: As proud as we are about performance, we're even more enthusiastic about the opportunities and life before us.

As proud as we are of our performance, we're even more enthusiastic about the opportunities that lie before us.

Speaker 3: We've built a unique franchise where the strong foundation of great people sophisticated tools and technologies and deep relationships with a top notch group of distribution parts.

We have built a unique franchise with a strong foundation of great people.

<unk> tools and technologies and deep relationships with a top notch group of distribution partners.

We generated solid financial results in the fourth quarter with a 13, 8% annualized non-GAAP operating Roe.

Speaker 3: We generated solid financial results in the fourth quarter, with a 13.8% annualized non-GAP operating order.

For the full year or 14, 3% non-GAAP operating ROE it was extremely strong and well above our target of 11%.

Speaker 3: For the full year, our 14.3% non-gab operating RLE was extremely strong and well above our target of 11%.

Speaker 3: Underwriting profitability and investment performance for both meaningful contributors to our financial result results for the quarter and the year.

Underwriting profitability and investment performance, we are both meaningful contributors to our financial results for the quarter and the year.

Speaker 3: For the corner drivers of our rent periods, rate growth included overall renewal, pure price increases averaging 4.7%, which were driven by 5% in commercial lines at 5.9% in EMS.

For the quarter drivers of our net premiums written growth included overall renewal pure price increases, averaging four 7%, which were driven by 5% and commercial lines at five 9% in E&S.

Speaker 3: Exposure growth are approximately 3.6% and are renewable for commercial lines, strong retention across all three segments, an overall new business growth of 11%, including 8% in commercial lines and 30% in EMS.

Exposure growth of approximately three 6% on our renewal book for commercial lines strong retentions across all three segments and overall, new business growth of 11%, including 8% in commercial lines and 30% in E&S.

Our 93, 1% combined ratio for the quarter included four five points of net catastrophe losses, partially offset by one nine points of net favorable prior year casualty reserve development.

Speaker 3: Our 93.1% combined ratio for the quarter included 4.5 points of necotasophy losses partially offset by 1.9 points of net favorable prior year casualty reserve.

Speaker 3: The underlying cabbim ratio was 90.5, reinforcing the high quality of our book of this.

Underlying combined ratio was 95, reinforcing our high quality of our book of business.

Speaker 3: The investment income after tax was $65 million in the court, benefiting again from the exceptional performance of our alternative investments, particularly unrealized gains on our private equity limited partners.

Net investment income after tax was <unk> $65 million in the quarter benefiting again from the exceptional performance of our alternative investments, particularly unrealized gains on our private equity and limited partnership portfolio.

Speaker 3: In addition to delivering excellent results, I want to highlight some of our other key achievements for the year.

In addition to delivering excellent results I wanted to highlight some of our other key achievements for the year.

We continued our decade long track record of achieving renewal pure price increases that have been in line with or above expected loss trends.

Speaker 3: We continue to our decade-long track record of achieving renewal pure price increases that have been in line with or above expected loss.

Speaker 3: This track record gives us confidence to effectively navigate through all market cycles.

This track record gives us confidence to effectively navigate through all market cycles.

We executed several strategic initiatives that will drive ongoing profitable growth.

Speaker 3: We have to keep several strategic initiatives that will drive ongoing profitable growth, such as expanding the utilization of market-next.

As expanding utilization of Mark and Max.

Speaker 3: Our agency facing platform that helps identify new business opportunities, upgrading our technology platforms for small commercial and EMS business, and repositioning our personalized products and services to compete in the mass upload market.

Our agency facing platform that helps identify new business opportunities upgrading our technology platforms for small commercial and E&S business and repositioning our personal lines products and services to compete in the mass affluent market.

We also lay the foundation to expand our commercial lines footprint by three additional states in the latter half of this year.

Speaker 3: We also laid the foundation to expand our commercial lines footprint by three additional states in the latter half of this year.

Speaker 3: And we made significant progress on our ESG initiatives and disclosures, including taking a number of steps to enhance the employee diversity at all levels within the organization.

We made significant progress on our ESG initiatives and disclosures, including taking a number of steps to enhance the employee employee diversity at all levels within the organization.

Speaker 3: We also ensure our employees were supported throughout the pandemic as we maintain excellent employee engagement and alignment despite the largely remote work environment.

We also ensured our employees were supported throughout the pandemic as we maintained excellent employee engagement and alignment despite the largely remote work environment.

Speaker 3: Our success on this front is best demonstrated by selected being certified as a great place to work from the second consecutive year.

Our success on this front is best demonstrated by selected being certified as a great place to work for the second consecutive year.

Speaker 3: The achievement I am most proud of is the unwavering dedication of our employees in serving out customers and distribution partners and helping them navigate through the pandemic-related challenges and the various catastrophic events they'd experienced.

We achieved what I am most proud obviously unwavering dedication of our employees and serving our customers and distribution partners and helping them navigate through the pandemic related challenges and the various catastrophic events they've experienced.

Speaker 3: Their efforts over the past two years have further strengthened our reputation in the market with customers and distribution partners.

Our efforts over the past three years have further strengthened our reputation in the market with customers and distribution partners.

Speaker 3: The actual and performance we delivered in 2021 is the direct result of our ability to successfully execute the fundamentals of our business. We're selection, pricing, and claims adjudication.

The excellent performance we delivered in 2021 is the direct result of our ability to successfully execute the fundamentals of our business risk selection pricing and claims adjudication.

Speaker 3: Our strategic competitive advantages in our core commercial line business have as well positioned for the future.

Our strategic competitive advantages in our core commercial lines business have us well positioned for the future.

Speaker 3: Those key advantages are a unique field model placing empowered underwriting staff in proximity to our distribution partners and customers.

Those key advantages our unique field model, placing empowered underwriting staff in proximity to our distribution partners and customers.

Speaker 3: a franchise value distribution model defined by meaningful and close business relationships with a group of top notch independent agents.

A franchise value distribution model defined by meaningful and close business relationships with a group of top notch independent agents.

Speaker 3: Our ability to develop and integrate sophisticated tools for risk risk selection, pricing and claims management.

Our ability to develop and integrate sophisticated tools for risk selection pricing and claims management deliver.

Speaker 3: Delivering a superior omnichamma customer experience enhanced by digital platforms and value-out of services and a highly engaged and aligned team of extremely talented employees.

Delivering a superior omnichannel customer experience enhanced by digital platforms and value added services.

In a highly engaged and aligned team of extremely talented employees.

I'll close by highlighting two key market dynamics and how we are managing through this environment first.

Speaker 3: are closed by highlighting two key market dynamics and how we are managing through this environment. First, there is less certainty in forward lost trends as we emerge from a pandemic influence economy. Every company in the market faces this reality.

There is less certainty and forward loss trends as we emerge from the pandemic influenced economy.

Every company in the market faces this reality.

Speaker 3: This uncertainty is driven primarily by three factors, economic inflation, social inflation, and then two most recent accident years presenting unusual frequency and severity.

This uncertainty is driven primarily by three factors economic inflation, social inflation and the two most recent accident years, presenting unusual frequency and severity patterns with.

Speaker 3: With regard to economic inflation, the impact continues to be largely on the shorter tailed property lines, and these trends have persisted longer than originally anticipated.

With regard to economic inflation the impact continues to be largely on the shorter tail property lines and these trends have persisted longer than originally anticipated.

Speaker 3: On the cash decal lines, the social inflationary trends that were evident pre-pandemic are expected to persist.

On the casualty lines, the social inflationary trends that were evident pre pandemic are expected to persist.

Speaker 3: Medical trends, which impact workers' compensation and biolientric coverages, have been more stable.

Medical trends, which impact workers' compensation and bodily injury coverages have been more stable.

Speaker 3: Finally, we use prior accident years as a basis to estimate future geolostration selections. An accident years 20 and 21 show meaningful decreases in frequency, largely offset by increases in severity.

Finally, we used prior accident years as a basis to estimate future year loss ratio selections and accident years, 2020 , one show meaningful decreases in frequency largely offset by increases in into various these patterns create additional uncertainty in projecting frequencies and severities in a post pandemic environment.

Speaker 3: These patterns create additional uncertainty in projecting frequencies and severities in a post-pandemic environment.

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Speaker 3: Taken together, these additional uncertainties have led us to increase the expected loss train contained in our 2022 loss ratio estimates from approximately 4% to 5%.

Taken together these additional uncertainties have led us to increase the expected loss trend contained in our 2022 loss ratio estimates from approximately 4% to 5%.

Second given these loss trends combined with continued pressure on investment income from the historically low interest rates elevated catastrophe losses, and affirming reinsurance market, we expect the commercial lines pricing environment other than workers' compensation to remain favorable.

Speaker 3: Second, given these lost trends, combined with continued pressure on investment income from historically low interest rates, elevated catastrophe losses, and a firm re-insurance market, we expect a commercialized pricing environment other than workers' compensation to remain favorable.

Speaker 3: We have demonstrated for over a decade our ability to consistently have seen real true price increases that are in line with or above expected loss trends at approach we will maintain.

We have demonstrated for over a decade, our ability to consistently obtain renewal pure price increases that are in line with or above expected loss trend and approach we will maintain.

Speaker 3: We also pride ourselves on maintaining a similar level of underwriting and pricing discipline when evaluating new business up.

We also pride ourselves on maintaining a similar level of underwriting and pricing discipline, when evaluating new business opportunities we.

Speaker 3: We will continue to leverage our sophisticated underwriting and pricing tools, branchize distribution relationships, and superior customer service and capabilities to achieve our top and bottom line targets.

We will continue to leverage our sophisticated underwriting and pricing tools franchise.

Franchise distribution relationships and superior customer service and capabilities to achieve our top and bottom line targets.

Speaker 3: In our commercialized portfolio, renewal pure price increases, net of any exposure change, remain relatively stable throughout the year. Our fourth quarter pure renewal rate was 5%, compared to 5.3% to the full year.

In our commercial lines portfolio renewal pure price increases net of any exposure change remained relatively stable throughout the year.

Our fourth quarter pure renewal rate was 5% compared to five 3% for the full year.

Speaker 3: While pure prices the primary leverage to maintain pace with boss trends and improve loss ratios, we take other actions to improve our loss experience.

While pure price is the primary lever to maintain pace with loss trends and improved loss ratios, we take other actions to improve our loss experience.

Speaker 3: These include underwriting actions to improve vixen business and claim submission and to improve outcomes while maintaining fair settlement for our claimant.

These include underwriting actions to improve mix of business and claims initiative to improve outcomes, while maintaining fair settlement for our claimants.

On business mix, we have long focused on administering renewal pricing in a very granular fashion based on expected future profitability of an account.

Speaker 3: On business links, we have won't focus on administering renewal pricing in a very granular fashion. They start expected future profitability of an account.

Speaker 3: Our under-eyer's manage, the renewal pricing and retention based on profitability cohorts to achieve a favorable shift in portfolio.

Our underwriters manage the renewal pricing and retention based on profitability cohorts to achieve a favorable shift in portfolio mix in 2021, the cohort of accounts with the lowest expected future profitability, which represent about 11% of our portfolio and renewal pure rate increases seven points.

Speaker 3: In 2021, the cohort of accounts with the lowest expected future profitability, which represented about 11 percent of our portfolio, had renewable pure rate increases 7 points higher than our top performing cohort, and were retained at 6 points lower than our top performing cohort, which represented 25 percent of our...

Higher than our top performing cohort and will retain at six points lower than our top performing cohort, which represent 25% of our book.

Speaker 3: This favorable shift in the next business will benefit future loss ratio.

This favorable shift in mix of business will benefit future loss ratios.

Speaker 3: On the claims run, we are focused on improving outcomes, efficiency and customer experience to initiative such as centralization of complex claims, incorporation of robotic process automation for persons of loss, virtual appraisals, and digital fast tracking of certain low complexity.

On the claims front, we are focused on improving outcomes efficiencies and customer experience through initiatives such as centralization of complex claims incorporation of robotic process automation for person with some loss virtual appraisals and digital fast tracking of certain low complexity claims.

Overall, I am very pleased with our strong execution consistent track record of excellent results and plans to generate consistent and profitable growth.

Speaker 3: Overall, I'm very pleased with our strong execution, consistent track record of excellent results, and plans to generate consistent and profitable growth. Now I'll turn the call to Mark to review the results for the quarter.

Now I'll turn the call to Mark to review the results for the quarter.

Speaker 4: Thank you, Jonathan. Good morning. Our review on consolidated results discuss our segment operating performance and finish with an update on our capital position and initial guidance to 2022. For the fourth quarter, we reported net income available to common stockholders for diluted share of $1.59, and non-gap operating EPS of $1.56. Strong, underrated results and investment performance were both meaningful contributors to the results of the quarter.

Thank you Sal and good morning, I'll review, our consolidated results discuss our segment operating performance and finish with an update on our capital position and initial guidance for 2022 for.

For the fourth quarter, we reported net income available to common stockholders per diluted share of $1 59, and non-GAAP operating EPS of $1 56 strong underwriting results and investment performance for both meaningful contributors to the results this quarter.

Speaker 4: For the full year, we reported record ETFs of $6.50, and record non-gap operating ETFs of $6.27, which was down 51% for...

For the full year, we reported record EPS of $6 50.

And record non-GAAP operating EPS of $6 27.

Which was up 51% in 2020.

Speaker 4: A strong non-cap operating hour we, 14.3% was driven by solid, underlying, underwriting results, capable reserve of development, and extremely strong alternative investment income.

Our strong non-GAAP operating ROE of 14, 3% was driven by solid underlying underwriting results favorable reserve development and extremely strong alternative investment income.

Speaker 4: We also generated excellent top-line growth in 2021 and advanced our strategic objectives. Overall, it was now that excellent year for Selective and our shareholders.

We also generated excellent top line growth in 2021 and advance our strategic objectives. Overall it was another excellent year for selective and our shareholders.

Turning to our consolidated underwriting results, we reported 9% growth in net premiums written in the fourth quarter for the full year net premiums written increased 15%, which makes it the strongest year growth of selective in almost two decades.

Speaker 4: So, in terms of consolidated underwriting results, we reported 9% growth in that print is written in the fourth quarter. For the full year, that print is written, increased 15%, which makes it the strongest year of growth for selective in almost two decades.

Speaker 4: We reported a consolidated combined ratio of 93.1% for the board quarter.

We reported a consolidated combined ratio of 93, 1% for the fourth quarter.

Speaker 4: including the combined ratio with $35.3 million of net catastrophe losses of 4.5 points, and $15 million of net-fable priori-accautally reserved development of 1.9 points.

Included in the combined ratio was $35 3 million of net catastrophe losses of $4 five points and $58 million of net favorable prior year casualty reserve development of one nine points.

Speaker 4: Contams to the losses well-eated this quarter with two events in mid-December accounting for approximately half of the losses and primarily impacting commercial lines.

That's what the losses were elevated this quarter with two events in mid December accounted for approximately half of the losses, primarily impacting commercial lines.

Speaker 4: On an underlying basis of excluding catastrophes and prior to causative reserve development, the combined ratio was 90.5% for the group.

On an underlying basis, excluding catastrophes and prior year Casualty reserve development. The combined ratio was 95% for the quarter.

Speaker 4: For the year, we reported a very profitable combined ratio of 92.8%, and an underlying combined ratio of 90.1%, the 90.1% underlying combined ratio compares favorable to our initial 2021 guidance of a 91% underlying combined ratio with the variance of, principally, by low and expected, non-count property losses, and a low and expected expense ratio.

For the year, we reported a very profitable combined ratio of 92, 8% and an underlying combined ratio of 91% to 91% underlying combined ratio compares favorably to our initial 2021 guidance of 91% underlying combined ratio with the variance driven principally by lower than expected non cat property losses.

And the lower than expected expense ratio.

Moving to expenses our expense ratio was 32, 5% for the year compared with 73, 8% for the prior year period and reflect some of our cost containment initiatives as well as lower than expected travel and entertainment and overhead expenses.

Speaker 4: Moving through expenses, our expense ratio is 32.5% of the year compared with 33.8% of the prior year period and reflects some of our cost containment initiatives as well as more than expected travel and entertainment and overhead expenses.

Speaker 4: We remain focused on lowering expense ratio through a range of initiatives while ensuring we're investing appropriately to support our longer term strategic objective.

We remain focused on lowering the expense ratio for a range of initiatives, while ensuring we are investing appropriately to support our longer term strategic objectives.

Speaker 4: We afford our expense ratio down meaningfully since its peak of 35.3% in 2016. While we expect our 2022 expense ratio to be flat with 21, as our continued cost containment initiatives will be offset by pandemic-driven expense savings, trending back to pre-pandemic levels, we expect a lower rate and achieve a longer term expense ratio target in 2023.

We report our expense ratio down meaningfully since its peak 35, 3% in 2016.

While we expect our 2022 expense ratio to be flat with 21 as our continued cost containment initiatives will be offset by pandemic revenue expense savings trending back to pre pandemic levels, we expect to Laurence and achieve our longer term expense ratio target in 2023.

Corporate expenses, which are principally comprised of holding company costs and long term stock compensation totaled $5 4 million in the quarter and $28 3 million for the year.

Speaker 4: Corporate expenses which are principally comprised of Goldie company costs for long term spell compensation for 5.4 million in the quarter and 28.3 million per year.

Speaker 4: Turning to our segments for the fourth quarter, standard commercial lines and our premiums written increase 8%, driven by a renewal of fuel price increases averaging 5%, solid and stable retention of 86%, and new business growth of 8%, exposure growth was also positive. For the year, that premiums written increased 16%, or 12%, when adjusted for the prior year COVID-19 related item.

Turning to our segments for the fourth quarter standard commercial lines net premiums written increased 8% driven by renewal pure price increases, averaging 5% solid and stable retention of 86% of new business growth of 8% exposure growth was also positive.

Net premiums written increased 16% on 12% when adjusted for the prior year COVID-19 related item.

The commercial lines combined ratio was a profitable 93, 1% for the fourth quarter and included four two points of net catastrophe losses, and two full points of net favorable prior year casualty reserve development.

Speaker 4: The commercial lines' configuration was a profitable 93.1% for the fourth quarter, and included 4.2 points of that catastrophe losses and 2.4 points of that very well-prided capture reserve for that.

Speaker 4: The favorable prior year casualty reserve development was driven by 30 million for the Workers' Compensation Line related to accident years 2019 and prior. This was partially offset by 15 million of reserve strength and aimed for the commercial auto line related principally to higher than expected bodily injury severities for the 2006-2003-19 accident.

<unk> prior year Casualty reserve development was driven by $30 million for the workers compensation line related to accident years 2019, and Prime this was partially offset by $50 million of reserve strengthening for the commercial auto line related principally to higher than expected bodily injury severities for the 2016 it exited.

Yes.

Speaker 4: The commercial lines on the line combined ratio was 91.3% for the quarter. For the full year, the combination was a very profit of 91.9% and the underlying combined ratio was 90.6%.

The commercial lines underlying combined ratio was 91, 3% for the quarter for the full year combined ratio was a very profitable 91, 9% and the underlying combined ratio was 96%.

In our personal lines segment net premiums written increased 1% in the quarter, but were down 1% for the year, reflecting continued competitive market conditions, particularly for post holdup.

Speaker 4: In our personal line statement, that Prins' revenue increased 1% in the quarter, but we're down 1% for the year, reflecting continued competitive market conditions, particularly for personal order.

Speaker 4: We've started to gain some traction in our news, Mass Apple and Target Market for Home, which is encouraging and is early indicated that our news strategy is working. However, it will likely take some time to get back into a consistent growth mode. Where the ill-fuel price increases average 1.1% for the quarter, retention was slightly down relative to a year ago at 83%, and new business was down 9%.

We started to gain some traction in our new mass affluent target market for home, which is encouraging and as early indicators in our new strategy is working however, it will likely take some time to get back into a consistent growth mode.

Renewal pure price increases averaged one 1% for the quarter retention was slightly down relative to a year ago at 83% and new business was down 9%.

Speaker 4: The combination in the quarter was 97.6% and included 9.9% to back the answer to losses. The underlying combination was 87.7%. For the following year, the combination was 98.6% and the underlying combination was 85.9%.

The combined ratio in the quarter was 97, 6% and included $9 nine points of catastrophe losses.

Underlying combined ratio was 87, 7% for the full year. The combined ratio was 98, 6% and the underlying combined ratio was 85, 9%.

Speaker 4: In our EDF segment, net price rate increased 27% for the quarter relative to a year ago. Renewable fuel pricing increases average 5.9% retention remains strong relative to a year ago, and new business was up 30%.

In our E&S segment net premiums written grew 27% for the quarter relative to a year ago renewal pure price increases averaged five 9% retention remains strong relative to a year ago, our new business was up 30%.

Speaker 4: The elbow renewal rate strength action that is steps it in the fourth order was not a meaningful contributor to premium growth, although we expect renewals on that book to pick up in the coming orders.

Yes ill go renewal rights transaction is inserted in the fourth quarter was not a meaningful contributor to premium growth. Although we expect renewals on that book to pick up in the coming quarters.

Speaker 4: The Convigration for the Segment was an extremely profitable 88.8% in the Gourub and included 1.6 points of debt with astrope losses. The underlying Convigration was 87.2%. For the full year, the Convigration was 94.3% and the underlying Convigration was 88.7%. And that sentence written growth was a very strong 23%. Overall, 2021 was our best year for our E&S Segment since we launched it about a decade ago.

The combined ratio for the segment was an extremely profitable 88, 8% in the quarter and included one six points of net catastrophe losses.

Underlying combined ratio was 87, 2% for the full year. The combined ratio was 94, 3% in the underlying combined ratio was 88, 7% and then fragrance written growth was a very strong 23% overall 2021 was our best year for our E&S segment since we launched it about a decade ago.

Speaker 4: Moving to investments. Our investment portfolio remains well positioned. As of quarter and 91% of our portfolio was invested in 16, come and short term investment with an average credit rating of 8 plus and an attractive duration of 3.9 years, offering a high degree of liquidity. Risk assets, which include our high yield allocation containers within 16, come public equities and alternatives represent 11% of our portfolio.

Moving to investments our investment portfolio remains well positioned as of quarter end, 91% of our portfolio was invested in fixed income and short term investments with an average credit rating of a plus and an effective duration of three nine years offer and a high degree of liquidity risk assets, which include our high yield allocation contained within fixed pay.

Public equities and alternatives represent 11% of our portfolio.

Speaker 4: For the quarter, after taxed an investment income of 64.5 million, was up 16% for the year ago period. The increase was primarily driven by 19.6 million of after taxed alternative investment gains compared to 13.9 million in the comparative period. As a reminder, that investment income of alternative investments is reported on a one-four-to-lay. We expect the contribution from alternatives to return to more normal levels and the coming quarter.

For the quarter after tax net investment income of $64 5 million was up 16% from the year ago period. The increase was primarily driven by $19 6 million of after tax alternative investment days compared to $13 9 million in the comparative period as a reminder, net investment income from alternative investments.

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We expect the contribution from alternatives to return to more normal levels in the coming quarters.

Speaker 4: The aftertax yield on the portfolio was 3.2% for the quarter delivering a strong 9.4 points of our recontribution, with alternative investments contributing 2.8% to points.

The after tax yield on the portfolio was three 2% for the quarter delivered a strong nine four points of our REIT contribution with alternative investments contributing to eight percentage points.

Speaker 4: The after tax yield on the fixed income securities portfolio was 2.5% in the fourth quarter, which was slightly down compared with a year ago. The average after tax new money yield on fixed income purchases during the quarter was 2.1%, which is up to quite a late 1.8%, but down from 2.2% in the comparative quarter. The total return on the portfolio was 0.41% for the quarter and 2.74% for the year.

The after tax yield on the fixed income securities portfolio was two 5% in the fourth quarter, which was slightly down compared with a year ago.

The average after tax new money yield on fixed income purchases during the quarter was two 1%, which is up sequentially from one 8% down from two 2% in the comparative quarter.

The total return on the portfolio was four 1% for the quarter and $2, 74% for the year.

Speaker 4: With regards to our reinsurance program, we successfully renewed our CAT program on January 1st. We retained our existing structure for a core CAT program, including 40-$40 million retention, although we added 50 million of limits in response to our growing book of business. We maintained a 1-100 to 1% net probable maximum loss of PML for US hurricane at a very manageable 1% of the CAT equity. And a 1-250 in that PML, or 0.4% probability, at all costs and at CAT equity.

With regards to our reinsurance program, we successfully renewed our cat program on January one we retained our existing structure from our KOL cap program, including $40 million retention, although we added $50 million of limit in response to our growing book of business, we maintained a 100% to 1% net probable maximum loss or <unk>.

U S hurricane at <unk>.

Very manageable, 1% of the GAAP equity and a one and $2 50 that CML or 4% probability and 4% of GAAP equity.

Speaker 4: We also renewed our non-core footprint property cap program. We restructured this cover for the ENS-only cover, and it now covers all states right in our business, but does exclude standard commercial lines for our five-year-old states. We increase the retention of 10 million from 5 million and increase our co-pacification from 15% to 34%. Pracing on our cap program increased modestly on a risk of justifying this, but wasn't aligned with that of lost free accounts in the US.

We also renewed our noncore footprint property Cat program, we restructure this cover for the E&S only cover and it now covers Allstate E&S business, but does exclude standard commercial lines for our five newest states will increase the retention of $10 million from $5 billion and increased our co participation from 15% to 34%.

Pricing on our cap program increased modestly on a risk adjusted basis, but was in line with that of loss free accounts in the U S.

Speaker 4: As a reminder, a RENTRANCE program also includes access to lots of treaties, which limit the impact to us for large losses to 2 million coverage, click casually, and 3 million per occurrence for profit.

As a reminder, our reinsurance program also includes or excludes the loss treaty, which limit the impact to us from large losses to $2 million covers for casualty and $3 million per occurrence for property.

Speaker 4: So into capital, our capital position remains extremely strong with 3 billion of capital units of your end. Both value for sharing increased 9% during the year, with strong earnings partially offset by dividends and reduction in net unrealized gains.

Turning to capital our capital position remains extremely strong with $3 billion of cap equity as of year end book value per share increased 9% during the year with strong earnings partially offset by dividends and the reduction of net unrealized gain.

Speaker 4: Cash flow was extremely strong in 2021, with 771 billion about credit cash flow for 24% of net premiums written. Our financial position is now the strongest in our company's 95 year history. An office of significant financial flexibility as we look to grow and execute on our strategic objective.

Cash flow was extremely strong in 2021 with $771 million of operating cash flow of 24% of net premiums written our financial position is now the strongest in our company's 95 year history and offers us significant financial flexibility as we look to grow and execute on our strategic objectives.

Speaker 4: Our cash and investment position are holding companies paying to 527 million, which is a bum our longer term target.

Cash and investment position of the holding company stands at $527 million, which is above our longer term target.

Speaker 4: On that previous ridden to surplus ratio 1.33 times, this slightly lower target range of 1.35 to 1.55 times, a depth to capital ratio of 14.5% is also very conservative.

Our net premiums written to surplus ratio of 133 times slightly below our target range of $1 35 to 155 times.

Debt to capital ratio of 14, 5% is also very conservative.

Speaker 4: We did not refotus any shares during the fourth quarter or subsequent to the quarter end under a $100 million share refotus program. We have 96.6 million of remaining capacity under this program, which we plan to use opportunity.

Did not repurchase any shares during the fourth quarter or subsequent to the quarter end under our $100 million share repurchase program. We have $96 6 million of remaining capacity under this program, which we plan to use opportunistically.

Speaker 4: As we transition and look ahead to 2022, each year we establish an operating hour retarget. Based on at least a 300 basis point spread over our weighted average cost of capital, as well as considering other factors including market conditions.

As we transition and look ahead to 2022 each year, we establish an operating our retail based on at least the 300 basis points spread over our weighted average cost of capital.

Well as considering other factors, including market conditions for 2022, we have maintained at 11% non-GAAP op margin, our retail goods, which is about 350 basis points over our weighted average cost of capital.

Speaker 4: For 2022, we have maintained that 11% non-gap operating hour of eTarget, which is about 350 basis points over our weighted average faster capital. Our target RE sets the high bar for our financial performance, and aligns our incentive compensation structure with shareholder interest.

Target are already set a high bar for our financial performance and aligns our incentive compensation structure with shareholder interests over the use our actual reported results have of course vary from on targets given the inherent volatility in our business, but over the last eight years, we have delivered strong returns for our shareholders with an 11, 9%.

Speaker 4: Over the years, our actual reported results have, of course, varied from our targets, given the inherent volatility in our business. But over the last eight years, we have delivered strong returns for our shareholders, with an 11.9% average non-gap operating hour reading.

Average non-GAAP operating Roe.

Speaker 4: We have also grown tangible book value for share of what's accumulated dividends by 12.4% annually during the same time.

We have also grown tangible book value per share plus accumulated dividends by 12, 1% annualized during that same time period.

Speaker 4: Let me finish with some commentary on our initial guides for 2022. First, we expect a gap to buy ratio excluding catastrophe losses of 91%. This assumes no prior accident-year reserve development. Contestability losses of 4.5 combined ratio, after taxed investment income of 200 million, including 20 million, and after tax gains from our alternative investment.

Let me finish with some commentary on our initial guidance for 2022 first we expect the GAAP combined ratio excluding catastrophe losses of 91%. This assumes no prior accident year Reserve development.

Catastrophe losses of four points on the combined ratio after tax net investment income of 200 million, including $20 million in after tax gains from our alternative investments.

Speaker 4: An overall effective tax rate of approximately 20.5%, which includes an effective tax rate of 19.5% for net investment income and 21% for all other items. And weighted average shares of 61 million on a diluted basis, which does not reflect any share approaches since we may make under our authorization. With that, I'll turn the call back over to John .

And overall effective tax rate of approximately 25%, which includes an effective tax rate of 19, 5% for net investment income and 21% from all other items.

Weighted average shares of $61 million on a diluted basis, which does not reflect any share repurchases. We may make under our authorization with that I'll turn the call back over to John .

Speaker 3: Thanks Mark. Looking forward, we remain focused on achieving our objectives around probable growth and generating strong, early, relative to our weighted average cost of capital.

Thanks, Mark looking forward, we remain focused on achieving our objectives around profitable growth and generating strong roes relative to our weighted average cost of capital we.

Speaker 3: We have a decade-long track record of successfully balancing our goals around growth and profitability while driving improvements in our business.

We have a decade long track record of successfully balancing our goals around growth and profitability, while driving improvements in our business mix.

Speaker 3: I would like to highlight some of the key strategic initiatives that will contribute to our ongoing success. In commercial lines, we remain focused.

I would like to highlight some of the key strategic initiatives that will contribute to our ongoing success in.

In commercial lines, we remain focused on three fronts strategically increasing agents agent appointments to represent at least 25% market share in our footprint states.

Speaker 3: strategically increasing agent appointments to represent at least 25% market share in our footprint states Increasing selective share of our agents premium to 12% and executing our gene-radarative expansion plan during 2021 to meet

<unk> selected share of our agents premium to 12% and executing on our geographic expansion plan. During 2021, we've made meaningful progress on each.

Speaker 3: We appointed just over 100 new agencies, increasing our total agency count to approximately 1430, and our total start runs to approximately 2500. We expect this case to remain steady.

We appointed just over 100, new agencies, increasing our total agency count to approximately <unk> hundred 30, and our total store fronts to approximately 2500, we expect this pace to remain steady.

Speaker 3: We continue to generate organic growth with our existing agency partners. Our market max tool, which provides our distribution partners with insights into their overall portfolio and identifies target accounts to grow their business with us has been instrumental in generating new high quality business up.

We continue to generate organic growth with our existing agency partners are market Max tool, which provides our distribution partners with insights into their overall portfolio and identify as target accounts to grow their business with us has been instrumental in generating new high quality business opportunities and finally, our commercial lines geographic expansion.

Speaker 3: And finally, our commercial lines, G-GAP expansion plans were made on track. Over the next year, we plan to open the states of Alabama, Idaho and Vermont, what others plan for such a big year.

Plans remain on track over the next year, we plan to open the states of Alabama, Idaho in Vermont with others planned for subsequent years.

Speaker 3: Our new small business platform has been deployed for both commercial auto general liability property workers, comp and other supporting lines of business enhancing the ease and speed of transacting with us in this important market. We also expect to complete a rollout of our new E&S automation platform for general liability property and package business by the end of this quarter. Our updated personal lines product and service offerings to compete in the mass apple and market are showing early signs of success.

Our new small business platform has been deployed for BOP commercial auto and general liability property workers comp and other supporting lines of business enhancing the ease and speed of transacting with us in this important market.

We also expect to complete the rollout of our new E&S automation platform for general liability property and package business by the end of this quarter.

Our updated personal lines product and service offerings to compete in the mass affluent market are showing early signs of success.

Speaker 3: Finally, we continue to invest in and build out our visual customer offerings. The adoption of our self-service platform and my selected mobile app continue to accelerate. These platforms, along with our ongoing focus on expanding our value-added service offerings, should generate future retention.

Finally, we continue to invest in and build out our digital customer offerings adoption of our self service platform and my selected mobile App continued to accelerate these platforms along with our ongoing focus on expanding our value added service offerings should generate future retention patterns.

Speaker 3: The remainder of 2022, we are confident about our ability to sustain superior financial performance. We will stay true to our historically prudent and disciplined approach to generating consistent and profitable growth. With that, we will open the call for questions. Operator.

The remainder of 2022, we are confident about our ability to sustain superior financial performance, we will stay true to our historically prudent and disciplined approach to generating consistent and profitable growth.

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

Yes.

Speaker 1: Thank you. We will now begin the question and answer session. If you would like to ask the question, you may press star followed by the number one. Please unmute your phone and record your name and company name clearly when prompted. Your name and company name is required to introduce your question. So with your request, you may press star followed by the number.

Thank you we will now begin the question and answer session I would like to ask a question you May press star followed by the number one please on mute your filing and record your name and company name Katie when printed your name and company name is required to induce your question to withdraw your question Press Star followed by the number its data advent speakers there are questions on queue.

Speaker 1: Adden speakers, there are questions on Q. We have the first question from the line of Mike Zering's key, a wall-free search. You may ask her.

We had a first question from the line of Mike <unk> of Wolfe Research you May ask your question.

Speaker 5: Hey, good morning. Good morning. Good morning. First question, you know, it's hoping to further unpack.

Hey, good morning.

Great.

Good morning first question.

I was hoping to further unpack.

Speaker 5: increase in the expected loss trend from 4 to 5.

Increase.

The increase in the expected loss trend.

Four to five.

Speaker 5: And I also, maybe I'm wrong, I believe in it. In past years it's been in the threes, but you can correct me if I'm wrong. And now maybe you can kind of further unpack. You gave out a color, John . You know, is it being driven by? Just lets think of a creative bodied by a creative system.

And maybe I'm wrong I believe in it.

Past years, it's been in the threes, but you can correct me if I'm wrong and now maybe you can kind of further unpack.

And you gave a lot of color John .

Is it is it being driven by.

Speaker 5: property or is it just a mix of a number of things? So there's some good guys and some bad guys. And we can see some of your lines are running kind of hot.

Property or is it just a mix of a number of things. So there is some good guidance and bad guys.

We can see some of your lines.

Our running kind of hot.

Speaker 5: commercial auto, but you know, maybe that's a separate question, but maybe we can start there.

Commercial auto, but maybe that's just a separate question, but maybe we can start there. Thanks.

Speaker 3: Yeah, thanks, and appreciate the question. So there are a lot of pieces to this tonight, and I think you highlighted a couple of them. The first thing I'll say though is, I think it's always important when we talk about lost trend to separate historical lost trend, which is the actual changes in frequency and severity, looking back to prior accident years from expected lost trend.

Yeah. Thanks, Mike I. Appreciate the question. So there are a lot of pieces to this and I think you've highlighted a couple of them in the first thing I'll say, though is I think it's always important when we talk about loss trends have separate historical loss trend, which is the actual changes in frequency and severity looking back to prior accident years from expected loss trend.

Speaker 3: And just to clarify that point, our expected lost trend, which we're saying is 5% and that's embedded in the 2022 lost tick that underlies the guidance that Mark took you through.

And just to clarify that point, our expected loss trends, which we're saying is 5% and that's embedded in the 2022 loss pick that underlies the guidance that Mark took you through.

Speaker 3: Is it a reflective of some shift in our pattern looking backwards? So our historical lost trend, which actually for the last couple of years have been running about four percent.

Reflective of some shift in our pattern of looking backwards. So our historical loss trend, which actually have for last couple of years have been running about 4% just that just a shade under 4%. If you look back a few more years. It was it was in the 3% range, where we would move that up over the last couple of years before and now it's 5% on a go forward basis.

Speaker 3: just to share under 4%. If you look back in a few more years, it was in the 3% range, but we had moved that up over the last couple of years to 4 and now it's 5% on a go forward basis. But again, I want to stress that's more of forward looking assumption on our part in terms of directional shift driven by three primary factors. And we've pointed to these in the prepare comments and in prior discussion.

But again I want to stress that's more of a forward looking assumption on our part in terms of directional shift driven by three primary factors and we pointed to these in the prepared comments and in prior discussions number one is economic inflation and you've alluded to that impacting some lines more so than other number two is <unk>.

Speaker 3: Number one is economic inflation, and you've alluded to that impacting some lines more so than other. Number two is social inflation, and embedded in our assumption here in Moving Food 4.5 is that some of the social inflationary trends, which are more of a driver on the liability lines, that existed pre-pandemic are going to emerge.

While inflation and embedded in our assumption here and moving from four to five is that some of the social inflationary trends, which are more of a driver on the liability lines that existed pre pandemic are going to emerge and then the third consideration I would put us more in the uncertainty category is the fact that we all in the.

Speaker 3: And then the third consideration, and I would put this more in the uncertainty category, is the fact that we all in the industry have the last two prior accident years, which certainly play a role in our 22 pick, that present very different frequency and severity patterns that we've seen historical.

<unk> had the last two prior accident years, which certainly play a role in our.

Our 22 pick that present very different frequency and severity patterns that we've seen historically.

Speaker 3: Now I'm assuming like most companies, we've got a lot of discipline around making washer extra collections. But the first thing we do is take the last call it four or five accident years.

Now I'm, assuming like most companies, we've got a lot of discipline around making wausau collections, but the first thing. We do is take the last call it four or five accident years.

Speaker 3: Bring up the present rates, which accounts for the cumulative impact of the rate earns over the last several years. And then also fully train those for actual changes in severity and frequency. And that's why it's so important. And you hear us always emphasize this point. If you look back over the long term, we've been matching or exceeding our rate level relative to lust.

Bringing us the present rates, which accounts for the cumulative impact of the rate earned over the last several years and then also fully trend knows for actual changes in severity and frequency and that's why it's so important and you hear us always emphasize this point if you look back over the long term, we've been matching or exceed.

Our rate level relative to loss trend.

Speaker 3: So that's your starting point for your upcoming lost ratio selection by trending and on leveling and then lending those last five accent years. We then roll that forward by adding to it our expected trend of 5% and you can make your own view as to whether or not that's conservative or aggressive as well as our expectation for own rate well.

That's the that's your starting point for your upcoming loss ratio selection by trending on labeling and then blending those last five accident years. We then roll that forward by adding to our expected trend of 5% and you can make your own view as to whether or not that that's conservative or aggressive as well as our X.

Spectation four earned rate level. So I think understanding the two dynamics of historical versus expected loss trend is an important consideration I think it's also important to put the economic inflation in the context of where it impacts the business, most significantly and where it doesn't.

Speaker 3: So I think understanding the two dynamics of historical versus expected lost trend is an important consideration.

Speaker 3: I think it's also important to put the economic inflation in the context of where it impacts the business, most significantly, and where it doesn't. And I know I think I may reference to this in the prepared comments.

I think I made reference to this in the prepared comments when you look at economic inflation, we're not seeing a meaningful move in medical.

Speaker 3: When you look at economic inflation, we're not seeing a meaningful move in medical inflation. And medical is where you really have the bigger leveraging effect.

<unk> medical is where you really have the bigger leveraging effect, but that has been remaining relatively stable call. It into three maybe mid 3% range.

Speaker 3: But that has been remaining relatively stable, calling it in the three, maybe mid-three percent range. It's really driven more so by what we're seeing in the building side of things and the use cars and bodywork.

Really driven more so by what we're seeing in the <unk>.

Building side of things and the used cars body work.

Speaker 3: But you also have to put that in context. Let me just focus on an auto for a second. And remember, all of this discussion around severity and inflationary impact on severity has to be considered in the context of the frequency dynamic that we all still see, which is frequencies while they bounce back compared to 20.

But you also have to put that in context. So let me just let me just focus on auto for a second and remember all of this discussion around severity and inflationary impacts on severity has to be considered in the context of the frequency dynamic that we all still see which is frequencies, while they bounce back compared to 'twenty at.

Speaker 3: At least in our portfolio still remain a little bit below pre-pandemic levels. So you still have a lower frequency than you do pre-pandemic, which provides some bit of an offset to the economic and inflationary impacts on this area.

And our portfolio still remain a little bit below pre pandemic levels. So you still have a lower frequency of any do pre pandemic, which provides some bit of an offset to the economic inflationary impacts on the severity side, but if you focus on let's just let's stay on one of our physical damage, which I know is a really important consideration.

Speaker 3: But if you focus, and let's just, let's say on autophysical damage, which I know is a really important consideration. First of all, you want to put that in the context of what percentage of your overall loss, and the opening losses that that make up. And for us, first of all, physical damage is about 2% of our premium and probably about the same level in terms of opening lost hours. And commercial autophysical.

First of all you want to put that into context of what percentage of your overall loss net ultimate losses does that make up and for us personal auto physical damage is about 2% of our premium and probably about the same level in terms of ultimate losses, and commercial auto physical damage is about six 5% commercial in total.

Speaker 3: is about 6.5%. Personal in total is about 24% of premium, physical damage is about 6.5%. So think about it in terms of a little bit of 110% altogether of total or premium and therefore total earn losses. So that inflationary impact, which doesn't apply to 100 cents on the dollar for losses, is in a much smaller context in terms of the overall portfolio.

About 24% of premium physical damage of about six 5%. So think about it in terms of a little bit under 10% altogether total earned premium and therefore total earn losses, so that inflationary impact which doesn't apply to a 100 cents on the dollar for losses is it a much more context in terms of the overall portfolio.

Speaker 3: So again, I know I spent a lot of time and it can actually go into a lot more detail if you want on some of the other lines, but that's really how you want to put this in context.

So again I know I've spent a lot of time and it can actually go into a lot more detail. If you want on some of the auto lines, but thats really how you want to put this in context.

Speaker 3: We view the 4 to 5% as a reasonable expectation going forward. And we think that other companies might not be that meaningful in their movement, but the trends we're pointing to that are having us increase our forward loss trend by a point are pretty universal for everybody in our business.

We view, the 4% to 5% as a reasonable expectation going forward.

Think that other.

Other companies might not be that.

And their movement, but the trends worth pointing to that are having us increased our forward loss trend by a point are pretty universal for everybody in our business. So I'll pause there and happy to follow up on any area that you want to George for more because I think it's an important topic.

Speaker 3: So I'll pause there and happy to follow up on any area that like that you watch it to explore more because it's an important topic.

Speaker 5: Okay, no, definitely, and that was helpful maybe. Would some of the upwards movement and trend is a due to maybe selectives overweight?

No definitely and that was helpful. Maybe.

Good.

See that upward movement in trend is it is it due to maybe selective overweight.

Speaker 5: in commercial auto or kind of in more kind of blue collar trades and just trying to think if this is more specific to selective. I know that's maybe that's my job to figure that out, but just maybe if you could talk maybe if it's certain lines specifically being there driving.

In commercial auto or kind of more kind of little color trades and just trying to think if this is more specific.

The selective and I know, that's maybe that's my job to figure that out, but just maybe if you could talk maybe a little bit.

Certain lines, specifically being that are driving us.

Speaker 3: You know, I don't know that I would point to certain lines. Auto is certainly one that we have a little bit of a higher expected forward trend. But I will say that's we view the liability side as much as the physical damage side from that perspective. But I will say when it comes.

I don't I don't know that I would point to certain lines auto is certainly one that we have a little bit of a higher expected forward trend, but I will say that we view the liability side as much as the physical damage side from that perspective, but I will say when it comes to building out our expected loss trend, yes, there is an influence.

Speaker 3: building at our expected loss trend. Yes, there's an influence from your historical loss trend, but then we take the component parts of the CPI.

From your historical loss trend, but then we take the component parts of the CPI and break those down very specifically by line of business and how they impact each individual line and that gets embedded into our expected loss trend. So to that extent you will see a line of business distributions that might vary from one company to.

Speaker 3: and break those down very specifically by line of business and how they impact each individual line. And that gets embedded into our expected loss trend. So to that extent, you will see a line of business distributions that might vary from one company to another when you think about their percentage of property to liability writings, when you think about their auto and specifically their auto liability to auto fiscal damage.

Another when you think about their percentage of property to liability writings. When you think about their auto specifically the auto liability to auto physical damage.

Speaker 3: Those ratios are those relative premium volumes will.

Those ratios are those.

Relative premium volumes will move the number around but.

Speaker 3: move the number around, but I generally speaking, those inflationary impacts are going to impact everybody, but the mix of business might vary.

Generally speaking those inflationary impacts are going to impact everybody, but the mix of business Mike Berry.

Speaker 3: But I would say there's nothing in our art portfolio that would currently suggest that the forward trend expectation for us should be any different than anybody else.

But there is I would say there is nothing in our our portfolio that would currently suggests that the forward trend expectation for us should be any different than anybody else.

Okay. That's helpful.

Maybe shifting gears quickly to the.

Speaker 5: I think shifting gears quickly to the investment guidance.

The investment guidance.

Speaker 5: probably from Mark. I believe the implied yield on alternatives is...

Probably for Mark.

I believe.

Implied yield on alternatives.

<unk>.

Speaker 5: It feels a little, maybe you can talk about why the guide on the alternative yield guide is kind of lower than peers or the industry in terms of, you know, I think most peers are guiding to high singles, maybe even some no doubles.

It feels a little maybe you can talk about what why the guide on the alternative yield guidance is lower than peers or the industry.

In terms of I think most peers are guiding to high.

High singles, maybe even some.

Low doubles.

Speaker 4: Yeah, good question Mike. I just to level that 2021 was a record year for us in terms of off the tax that investment income at 263 million, including 93 million about the tax that investment income for the alternative portfolio. We've now delivered six consecutive orders of really strong returns from all.

Yes, good question, Mike I just to level set.

2021 was a record year for us in terms of after tax net investment income of $263 million, including $93 million of after tax net investment income from the alternative portfolio. We've now delivered six consecutive quarters of really strong returns for volt.

Speaker 4: And while we have great expectations for the portfolio to continue to produce very strong and attractive returns for us on our shelves, we do think that the strong returns we've enjoyed to the last six quarters will be back in longer term expectations.

And while we have great expectations for the portfolio to continue to produce very strong and attractive returns for our shareholders. We do think.

That.

The strong returns we have enjoyed for the last six quarters or go back to longer term expectations.

Speaker 4: So our guidance for 2022 $200 in 20 after tax fraud turnip is that is an after tax number. If you would have grossed that up to a pre tax number, it implies an 8% return for alternatives for 2022. And the way to think about that is we probably think that portfolio, which is a mix of private equity, private credit, real assets strategies, long term, will run between about 80 and 10%.

Our guidance for 2020 to 200, all in 'twenty after tax for alternatives that is an after tax number.

Gross that up.

To a pre tax number it implies an 8% return.

For <unk> for 2022, and the way to think about that as we probably think that portfolio, which is a mix of private equity private credit and real asset strategies long term will run between about 8% to 10%.

Speaker 4: We will have the benefit of a healthy capital markets returned from Q4 coming through Q1, but if you were to cut the quarter off today, for Q1 coming through Q2, we've had tremendous amount of volatility.

We'll have the benefit of a healthy capital markets returned from Q4 coming through Q1, but if you would have cut the quarter off today for Q1 coming through Q2, we've had tremendous amount of volatility.

Speaker 4: And when you think about public equity, market expectations, the transition to a higher, a transparent environment.

When you think about public equity market expectations, the transition to a higher interest rate environment.

Speaker 4: Slow and economic activity, likely slow and corporate revenue, corporate profits, low evaluation.

Slow economic activity likely slow a corporate revenue corporate.

Slow valuations, we do think it's appropriate to be kind of on the lower end of the range in terms of our expectations.

Speaker 4: We do think it's appropriate to be kind of on the lower end of the range in terms of our expectations for our alternative portfolio for 2022. So again, bad and 8% return is the expectation built into the guidance. So that probably provides the context.

Alternative portfolio for 2022, so again about an 8% return is the expectation built into the guidance hopefully that provides some context.

Great. Thank you.

Speaker 1: We have the next question from the line of Mayor Shields of KBW, Yemi Astor, class.

We have the next question from the line of Mayor Shields of K B W. You May ask your question.

Speaker 6: Great, thanks. I really only have one question. And I'm asking you if in the context of what's already been a very thoughtful way.

Great. Thanks, I really only have one question and I'm asking this in the context of what's already been a very thoughtful explanation.

Speaker 6: But I'm trying to understand why you're not assuming the call it 5% average loss trend on earlier accident years if they're subject to the same external catalyst.

But I'm trying to understand why youre not assuming the call it 5% average loss trend on earlier accident years.

Subject to the same.

External catalyst.

Speaker 3: Well, I guess you really want to think about how much of that is.

Well I guess, you really want to think about how much of that is subjected to the same catalysts versus how much is in a lot of these economic inflationary items because medical is not the driver doesn't really impact your reserve portfolio from the same perspective.

Speaker 3: subjected to the same catalyst versus how much is in a lot of these economic completionary items because medical is not the driver doesn't really impact your your your reserve portfolio from the same perspective. And I think that's the

And I think thats the thats the biggest change that would be different on a forward basis, which is more of a shorter tail line impact as opposed to any any meaningful impact on the reserve portfolio.

Speaker 3: that would be different on a forward basis, which is more of a sure tailwind impact as opposed to any meaningful impact on the reserve portfolio. So, and we evaluate every prior accident year, and you can see where the movement has been coming from, and the 20 and 21 accident years, we have not acted on. And when I say that, there was clearly some frequency benefits, but this question around severity.

We evaluate every prior accident year, and you could see where the movement has been coming from and the 2020 . One accident years, we have not acted on and when I say that there was clearly some frequency benefits, but this question around severities.

Speaker 3: has once led us to maintain those loss selections in both the 2021 accident years. So you can say our scans relative to increasing severity expectations and not reacting to the frequency drops in 2021. It may be somewhat reflecting of view that some of those inflationary considerations are driving some of the production.

What is what's led us to maintain those loss selections and bulk of 2020 one accident year. So you could say our stance relative to increasing severity expectations and not reacting to their frequency drops in 2020 , one maybe somewhat reflecting our view of that some of that.

Inflationary considerations are driving some of the severity of the more recent accident years.

Speaker 3: But again, those are all contained within our 20 and 21 accident in your loss fix, which we continue to remain very comfortable.

But again those are all contained within our 2020 , one accident year loss picks, which we continue to remain very comfortable with.

Speaker 6: No, that's helpful. We'll live in a gosh a question. I just really want to understand the thinking. Thank you.

No. That's helpful with regard to your question I, just really wanted to understand the thinking thank you.

Okay.

Speaker 1: We have the next question from the line of Grace Carter of Bank of America. Your line is not open. You can answer.

We have the next question from the line of Greg Carter of Bank of America. Your line is now open you can ask your question.

Hi, everyone.

Speaker 7: Hi everyone, thinking about the combined ratio guidance for this year paired with the Outlook for a flat extents ratio. And it applies a little bit of underlying loss ratio deterioration. I mean, we talked about the commercial loss trend.

Thinking about combined ratio guidance for this year paired.

Paired with the outlook.

That expense ratio.

It plays a little bit of underlying loss ratio deterioration I mean, we've talked about the commercial loss trends.

Speaker 7: There's expectations for pressure, industry wide and personal lines, but I wonder if you could just walk us through a little bit the contribution by segment to that potential deterioration and the loss ratio and just kind of how to think about that in the context of the ongoing pricing increases on the commercial line works reasonably broadly.

There is an expectations for pressure industry wide in personal lines, but I.

I was wondering if you could just walk us through a little bit the contribution by segment to that.

The deterioration in the loss ratio and just kind of how to think about that in the context of AUM.

The ongoing pricing increases on the commercial line side.

So Greg this is Bob maybe I'll start with its own suddenly jump and one thing I would just highlight is <unk>.

Speaker 2: So, great, so this is Mark, we've got started, John , certainly, champion. One thing I would just highlight is, it is an expectation for the year. As I mentioned, our results, so the industry results, can have a little bit of volatility, but represent kind of our base case, and expectations go into 2022. Did you look back at the last couple of years in 2020? We had a underlying combined ratio, expectation of a 91.5, and we still have a 90.1.

Spectation for the year and as I mentioned, our results. So the industry results and have a little bit of volatility represents kind of a base case.

Expectations going into 2022.

If you look back at the last couple of years in 2020, we had a underlying combined ratio expectations of a 91 five but when you look at 91.

Speaker 4: Last year, it was 21. We had an underlying combined ratio guidance of 91 and we did over 90.1. So we have come in better than expected for the last couple of years. But the last couple of years have been unusual, given the pandemic, given the frequency of intervention and how that comes through the results.

Last year at 21, we had an underlying combined ratio guidance of <unk> 91, and we delivered 91. So we have come in better than expected for the last couple of years, but the last couple of years have been unusual.

Given the pandemic driven frequency benefits.

<unk> results.

Speaker 4: As we look to 2022, you're right. If you go from 90.1 to 91 with a flat expense ratio, it implies 90 basis points of loss ratio of deterioration here on you. And I would have figured almost all of that to non-count property loss.

We look to 2022 right. If you go from 91 to 91 with a flat expense ratio.

90 basis points of loss ratio deterioration year on year, and I would attribute almost all of that to non cat property losses. So we've had two years now where the non cap property losses have been much lower than expected, we expect those to be both back to pre pandemic levels.

Speaker 2: So we've had two years now where the non-cap property losses have been much lower than expected.

Speaker 2: We expect those to refer back to pre-pandemic levels, but that's really the majority of the increase. There's always other moving parts. We have the rate versus trend. We have the underrated mix and claims benefits. We have slightly firmer range, assurance marketplace and puts some pressure on last ratio as well.

Really the majority of the increase there's always other moving parts, we have the rate versus trend.

We have the underwriting mix in claims benefits we have.

Slightly further great insurance marketplace to put some pressure on loss ratios, but non cap property is the biggest contributor to the movement in the loss ratio year on year.

Speaker 2: Non-calve property is the biggest contributor to the movement and mass ratio you are on here.

Speaker 3: So just to clarify the point here, reinforce the point marks, making it's very similar to how you think about cat loss expectations, we take a longer term view in terms of non-cat property. And even if we have a good year or two good years and a relative to expectations, we're generally gonna look at longer term averages and set that non-cat loss expectation where we think it should be based on historical patterns. So.

So just to clarify.

Clarify that point or reinforce the point Mark's making its very similar to how you think about catalyst expectations, we take a longer term view in terms of non cap property and even if we have a good year or two good years in a row relative to expectations were generally going to look at longer term averages and set that that non cat loss expectation.

It should be based on historical pattern. So that's not a statement that we think non cat property losses are going to deteriorate, but we just think about that in a longer term views of caution just reacting to one year that was better than expected or in this case two years of our better than expected.

Speaker 3: That's not a statement that we think non-cap property losses are going to deteriorate, but we just think about that in a longer term view. As a cost of just reacting to one year that was better than expected, or in this case two years ever better than expected.

Thank you.

Speaker 7: I'm thinking about the pivot towards mass affluent and the personal line segment. It feels like maybe the new business that you're looking at adding as the year goes on probably has a higher liability component than property component versus the older business. So I'm just kind of wondering how you expect loss cost in that segment to evolve. And that's...

And about the pivot towards mass affluent in the personal lines segment.

It looks like maybe.

The new business that you are looking at adding as the year goes on probably has a higher liability component than property component versus the older business.

Kind of wondering how you expect loss costs.

Segment sort of evolved in that context.

Speaker 3: You know, it's a great question. I don't actually see a big shift there because I mean, the fact of the matter is, aren't your property values on both the auto and the home side are gonna be moving higher as well. So there might be a little bit driptire in liability limits, but you're gonna see the same thing on the property limits side of the house so that we don't anticipate a meaningful shift from that perspective.

Hi.

It's a great question I don't actually see a big shift there because I mean, the fact the matter is on your property values.

On both the auto and the home side are going to be moving higher as well so there might be a little bit truck tire and liability limits by youre going to see the same thing on the property side of the house.

We don't anticipate a meaningful shift from that perspective.

Thank you.

Speaker 1: We have the next question from the line of Scott Halenak of RBC Capital Markets. You may ask her question and your line is now.

We have the next question from the line of Pat <unk>.

RBC capital markets you May ask your question. Your line is now open.

Speaker 8: Hi, good morning. Just wanted to ask first on the E and S premium growth, which has been strong for a while now. And I'm assuming that you're getting a lot more cord activity, I'm probably expansion with your distribution partners. But is there really just a pretty big shift in the way you're viewing E and S and you're obviously coming out for record year for that business? Are you just more comfortable in expanding that kind of over the long term, based on the favorable trends?

Hi, good morning.

I just wanted to ask first on the E&S premium growth, which has.

It has been strong for a while now and I'm assuming that you are getting a lot more code activity probably expansion with your distribution partners. But is there is there are really just.

A pretty big shift in the way, you're viewing and asking you're.

Obviously coming off a record year for that business.

More comfortable and expanding that kind of over the long term.

Based on the on the favorable trends.

Yes.

Speaker 3: You know, we like the business and as Mark indicated, you know, we've hit our stride and our delivering really strong results when you look back over our track records since getting into that business about 10 years ago. What you see, I mean, is clearly a pickup in both new business and even strong retention and business and E and externally retains at lower levels, but even in that context, retention's are stronger. We have it meaningfully shifted.

Like the business and as Mark indicated we've hit our stride and are delivering really strong results. When you look back over our track record since getting into that business about 10 years ago. What you see is clearly a pickup in both new business and even stronger retention and business and DNS generally retains at lower levels, but even in that context retention.

Our stronger we havent meaningfully shifted our underwriting appetite and the mix of business, we're seeing pretty consistent I think we're hitting our stride relative to agency relationships I think we're hitting our stride relative to our processes and the underwriting platforms that we continue to develop.

Speaker 3: Our underwriting appetite and the mix of business we're seeing is pretty consistent.

Speaker 3: I think we're hitting our stride relative to agency relationships. I think we're hitting our stride relative to our processes and the underwriting platforms that we continue to develop and introduce. And I think it's better execution. Do we think there are opportunities of potentially expand? We do, but we're gonna still stick to our knitting gear, which is a longer-limits profile business, sort of lower hazard within the E&S context.

And introduce and I guess, just better execution, and we think there are opportunities to potentially expand we do but we're going to still stick to our knitting here, which is a lower limits profile business sort of lower hazard within the E&S context, and we think the opportunities continue to be there and continue to be there on <unk>.

Speaker 3: And we think that the opportunities continue to be there and continue to be there a meaningful way.

Meaningful way.

Speaker 3: With regards to longer term, we still view this as a business we'd like to be and that call it up to 15% of total premium. We don't want it to be our predominant business. We think we've got a very unique set of competitive advantages and a very unique market position to stay commercial. And some of those skills are able to be leveraged.

With regards to longer term, we still view this as a business we'd like to be in that call. It up to 15% of total premium we don't want it to be our predominant business. We think we've got a very unique set of competitive advantages in a very unique market position, our standard commercial and some of those skills are able to be leveraged to help us.

Speaker 3: to help us in the E&S space. So we love the business. We think we've got a good growth path in front of us.

In the E&S space. So we love the business, we think we've got a good growth path in front of us, but we're not just out there chasing different types of opportunities that we don't have experience in.

Speaker 3: But we're not just out there chasing different types of opportunities that we don't have experienced and we're really growing in the areas that we we feel like we've got a lot of confidence in from an underwriting and apprising perspective.

We're really growing in the areas that we.

We feel like we've got a lot of confidence in from an underwriting and a <unk>.

<unk> perspective.

Okay. It.

Speaker 8: Okay. That sounds like it's pretty similar thinking to what you're talking about before just kind of

It sounds like it's pretty similar thinking to what Youre, what youre talking about before just just kind of pushing full steam ahead.

Speaker 8: pushing full steam ahead. And then the personal line side, I'm sure I'm assuming in personal all you're seeing the same trends everyone else's on the frequency and severity. Are there any plans to take significant rate actions there? I noticed that the...

And then.

The personal lines side.

I'm sure I'm, assuming in personal auto are you seeing seeing the same trends everyone else is on the frequency and severity are there any plans to take significant rate actions there I noticed that.

Speaker 8: The personal lines or real premiums or increases were up 1.1% for the quarter. And I was wondering if you might expect to take further riot actions on those in 2022.

The personal lines renewal premiums.

<unk> were up one 1% for the quarter and I was wondering if you.

You might expect to take further rate actions on those in 2022.

Speaker 3: I think when you look at our profitability in the personal online, and this is not just a reflection of some shippled in the last couple of quarters with regard to frequency and severity, we have want to do for profitability.

I think when you look at our profitability in the personal auto line and this is not just a reflection of some shift in the last couple of quarters with regard to frequency or severity. We have work to do from a profitability perspective.

Speaker 3: We do think there are some underwriting actions that will drive some of that, but there's clearly a rate being there, and we expect to begin to increase the rate level on that business on a go-forward basis.

We do think there are some some underwriting actions that will drive some of that but there is clearly a racy there and we expect it to begin to increase the rate level on that business on a go forward basis.

Okay and then.

Speaker 8: The 4 to 5% loss cost inflation change, is that a cross the board? How much of that is personal lines versus commercializes? Is that just a cross the board? I'm just trying to get a sense of the board. You got to.

The 4% to 5% loss cost inflation.

Change is that.

Is that specific is that just is that across the board how much of that is personal lines versus commercial lines is that just across the board I'm just trying to get a sense of.

Excellent.

Speaker 3: That's an oil end number. Again, it varies by land and business. And it varies a little bit by segment, but commercial lines is really the primary drive of being 80% of our business. And commercial lines is right in that spot.

That said, that's an all in number and it varies by line of business.

There is a little bit by segment, but commercial lines is really the primary driver being 80% of our business and commercial lines is right in that 5% kind of range. So.

Speaker 3: So it's all lines, commercial lines is a big driver, but think about it in terms of 5% overall.

So it's all lines and commercial lines is a big driver, but think about it in terms of 5% overall.

Yes, okay.

Speaker 8: Okay. All right, and I just said one last one, the you got it to the expense ratio being flat for 2022. Marketing quite catch your comments about 2023. Did you?

Alright, and I just had one last one day you guided to the expense ratio being flat for 2022.

I didn't quite catch your comment about 2023 did you.

Speaker 8: Was there a target range that you expect to see improvement for 2023?

Was there was there a target range that you expect to see improvement for 2023.

Speaker 2: Yeah, good question, Scott. I didn't mention the target. This quarter, though, would put it out there in the Palace, which is the longer-term target for us.

Yes. Good question, Scott I didn't mention that target this quarter, but we've put it out there in the pulse, which is a longer term target for us.

Speaker 2: which we believe is appropriate to compete effectively given our mix of this between commercial line, DNFs and postal line.

Which we believe is appropriate to compete effectively given our mix of business between commercial lines DNS and close the lines.

Speaker 2: given the current marketplaces only two.

Given the current marketplaces <unk>.

Speaker 2: And our plan, as we sit here today, our points to us achieving that target in 2023. So that's the plan as we sit here today and think about all the strategic objectives and growth initiatives we have in place as well as some of the significant and efficient deepflights we have in place as well. Great.

And our plan as we sit here today points to us achieving that target in 2020, sorry, So that's the plan.

We sit here today and think about all of the strategic objectives and growth initiatives, we have in place as well as some of the.

Significant efficiency plays we have in place as well.

Alright, great that's helpful. Thanks.

We have the next question from the line of Paul Newsome of Piper Sandler. Your line is now open you can ask your question.

Speaker 1: We have the next question from the line up all new sem O Piper Sender. Your line is now open. You can ask her questions.

Speaker 9: Good morning. Just based upon the emails, it seems like folks are pretty concerned about the upkick and the flake sensation number. You said it's a million times, but I think towards reiterating, when you have enough an increase to you…

Good morning.

Based upon the email to get them.

It seems like folks are pretty concerned about the uptick in.

The.

Temptation.

Sure.

Just you said this many times, but I think towards reiterating.

When you have an increase in.

Speaker 9: in claims inflation that goes directly into your pricing mile, right? So you would expect all things being equal to offset that.

In claims inflation that goes directly into your pricing model right. So new.

We would expect all things being equal to offset that.

Speaker 9: over time. So it would not necessarily need a margin to crease just because you have a more aggressive view on with claims inflation. I think you said that in the panel.

Over time.

It would not necessarily mean a margin decrease.

Just because you have.

Aggressive view on claims inflation I think you said that in the patent.

Yes.

Go ahead.

Yes. Thank you I appreciate the question I would say we point to our long term history. This is not just a recent phenomenon, but that has always been our philosophy, which is depending on where our margins are relative to our targets and what our outlook FERC for loss trend on a forward basis is our pricing indications and pricing targets are set accordingly and that.

Speaker 3: Yep, thank you. I appreciate the question. And I would say we point to our long-term history. This is not just a recent phenomenon, but that has always been our philosophy, which is depending on where our margins are relative to our target and what our outlook for lost trend on a forward basis is our pricing indications and pricing targets are set according.

Speaker 3: And that continues to be the case. And I just want to just go back to Mark's point because I think this really re-emphasizes the important consideration here, which is if you look at the roll forward from 21 underlying to 22 underlying, it's really just the resetting of non-cap property based on long-term averages that is creating that what appears to be a movement a little bit higher in the underlying by a little bit under a point.

Continuous to be the case and I just wanted to just go back to Mark's point, because I think this.

Really reemphasize is the important consideration here.

If you look at the roll forward from 'twenty, one underlying into 'twenty two underlying it's really just the resetting of non cap property based on long term averages that is creating that what appears to be a movement, a little bit higher than the underlying by a little bit under a point.

Speaker 3: which would suggest that our expectation is that lost trend for a basis and written rate or early on a forward basis are relatively comparable.

Which would suggest that our expectation is that loss trend on a forward basis and written rate earn rate on a forward basis are relatively comparable so you are keeping that underlying.

Speaker 3: So you're keeping that underlying the same when you take out that resetting of the non-CAP property to the longer-term average. So I think it's actually embedded in there. And I understand that the reaction to going from 4% to 5%, I think the key point in all of this is, all of these losses.

Same when you take out that resetting of the non cap property to the longer term average so I think it's actually embedded in there and I understand that.

The reaction to going from 4% to 5% I think that's a key point in all of this is.

All of these loss trends are manageable as long as you identify them and recognize them and respond to them and I think our our history over a long time now should show that we'd get out in front of these things and we price for it and we focus on delivering very stable and very strong margins.

Speaker 3: As long as you identify them and recognize them and respond to them. And I think our history over a long time now should show that we get out in front of these things and we price for it and we focus on delivering very stable and very strong margins on a consistent basis over the long term. And that philosophy will continue. We're highly transparent about how we think.

On a consistent basis over the long term and that philosophy will continue we're highly transparent about how we think.

Speaker 3: and how we make our wash ratio selection. Sometimes that transparency might, you know, create a negative reaction, but we think it's still the right way for us to interact with our shareholders.

And how we make our loss ratio selection, sometimes that transparency.

Create a negative reaction, but we think it's still the right way for us to interact with our our shareholders. So.

Speaker 9: So I appreciate the question and the opportunity to clarify that point. Great. Not actually an actual question. The one of the things I thought was curious, the least the corner so far is that it's really seem to be the very college college call.

So I appreciate the question and the opportunity to clarify that point.

It's actually been an actual question.

Yeah.

One of the things I thought I was curious leasing quarter. So far is that we're listening to the various conference calls.

Speaker 9: You're seeing a fairly wide range of views on whether or not pricing is getting better in Warhurst Comp, with Brian Brown saying it's bad and going down and Gallagher saying it's up. I'm just curious from your perspective because I know you're pre-thoughtful.

Youre seeing a fairly wide range.

And whether or not.

<unk> is getting better in workers' comp.

Brian Brown, saying, it's bad going down in Gallagher statements up.

So I'm just curious from your perspective.

No you pretty thoughtful about this.

Speaker 9: What might be the characteristic of the market today, where you would get this sort of different view on Gorker's Comp pricing, and how would that sort of square with your view?

What might be the characteristics of the market today, where you would get the sort of different view on workers' comp pricing and how would that sort of square with your.

<unk>.

Speaker 3: Yeah, I think the one big type of difference in views might be geographic concentrations. So what I can't tell you, I mean, our rate on an all-in basis for comp has been running right around you.

Yes, I think the one.

One of the big driver of difference in views might be geographic concentrations. So what I can tell you and you are.

Right on an all in basis for comp has been running right around Europe .

Speaker 3: But I think you also want to look at what is the impact.

But I think you also want to look at what is the impact on.

Speaker 3: on a market-wide basis of the file loss cost changes by the NPCI and the various state-rated bureaus. And I'm gonna give you a rough numbers.

On a market wide basis of the final loss cost changes by the NCI and the various state rating bureaus and I'm going to give you a rough numbers.

Speaker 3: So don't quote these as specific. But if you look back in 21, in the space that we're in for the entire market, the impact of those changes, we're in a five to six percent negative.

I don't call. It these are specific.

But if you look back in 'twenty one.

And the space that we're in for the entire market the impact of those changes were in the 5% to 6% negative range.

Speaker 3: For filings for 22 by those same euros that have been implemented at this point, it's about 200 basis points lower.

Filings for 'twenty two by those same euros that has been implemented at this point, it's about 200 basis points lower so more negative in 'twenty two than it was in 'twenty. One. So that's the context in terms of loss cost changes there are negative and are slightly more negative.

Speaker 3: So more negative in 22 that was in 21. So that's the context in terms of loss.

Speaker 3: They're negative and they're slightly more negative in 22 than they were in 21. Now again, that's only one pricing consideration. Clearly, you have individual scheduled credits and debits based on the qualities of the account, individual account and your expectations of performance of that account, which is how you wind up generating your ultimate rate change. And as we indicated for us, it was zero in 2021.

'twenty two than they were in 'twenty one no again, that's only one pricing consideration clearly you have individual scheduled credits and debits based on that the qualities of the account individual account and your expectation for performance of that account, which is how you wind up generating your ultimate.

Rate change.

We indicated for US it was zero in 2021, so that would suggest that through 'twenty. Two you are actually going to see a little bit more deterioration in comp pricing based purely on loss cost filings again theres more to it than that and those are but those are the dynamics that everybody is dealing with right now.

Speaker 3: So that would suggest that through 22, you're actually gonna see a little bit more of deterioration and comp pricing based purely on loss cost fireworks. Again, there's more to it than that. And those are, but those are the dynamics that everybody is dealing with right now. And again, comp results have been really strong.

And again comp results have been really strong.

Speaker 3: We focus on the accident year numbers and when you strip out all the payable development, they're so strong, but they're not strong to the point where you can support a five or six or seven percent rate reduction for another year. And we talk a lot about loss trend and economic inflation and medical has been stable.

Focus on the accident year numbers and when you strip out all the favorable development, they're still strong, but theyre not strong to the point, where you could support a five or six or 7% rate reduction for another year, and we talked a lot about loss trend and economic inflation and medical has been stable.

Speaker 3: But the leveraging effects of an increase in medical inflation for all workers, top writers is meaningful. So you just want to always keep that in mind, you know, a half a point or a point increase in medical inflation does take you to the entire reserve of the Tories. So I think that's why we've been fairly conservative in our pricing on COMP. And that's why our growth has been fairly muted in COMP in the last couple of years.

But the leveraging effect of an increase in medical inflation for all workers' comp writers as meaningful. So you just want to always keep that in mind.

A point or a point increase in medical inflation does take the entire reserve inventory. So I think that's why we've been fairly conservative in our pricing on comp and Thats why our growth has been fairly muted in comp in the last couple of years.

Great. Thank you and congrats on the quarter.

Thank you.

Speaker 1: We have the next question from the line of Carol Chimiel of JMP. Your line is now open. You can ask your question.

We have the next question from the line of Caroline <unk> JMP. Your line is now open you can ask your question.

Speaker 10: Yes, hi. Just have a simple question. Can you please just give me the breakdown of the cats in the standard commotion?

Yes, Hi, just.

Just had a simple question can you. Please just give me the breakdown of the cats in the standard commercial please.

Speaker 2: Certainly this is why I can give you that number. So I'm standing commercial lines. So it's in this is for the quarter We had 26.89 if the asset belongs to the 4.2 points on the combined and that breaks down to 23.6 in commercial property 900,000 in commercial auto and 2.3 million in Bump and that should get you back to the 26.89 in total for the quarter

Certainly this is Bob I can give you that number also in standard commercial lines assume this is for the quarter, we had $26 8 million of catastrophe losses too.

Two points.

On the combined and that breaks down to $23 six and commercial property 900000 in commercial auto and $2 3 billion.

Bob.

Could see back to the $26 8 million.

Total for the quarter.

Perfect. Thank you that's all.

Thank you.

Once again, everyone to ask a question you May press star followed by the number one record your name and company name clearly win from said 10 accounts here request you May Press Star and then number two once again to ask a question you May press star followed by the number one.

Speaker 1: Once again, everyone, to ask the question you may press star followed by the number one, record your name and company make truly when prompted to cancel your request, you may press star and the number two. Once again, to ask the question you may press star followed by the number one.

Speaker 1: And at this time, speakers, we have the next question from the line of Mike Zyrmsky of Wall Research. The line is now open. You can ask her question. Great. Just a couple of us.

And at this time speakers we have the next question from the line of Mike <unk> of Wolfe Research. Your line is now open you can ask your question.

Okay great.

A couple of follow ups.

I'm curious.

Speaker 5: Talk about a frequency law during the pandemic.

You talked about frequency.

Frequency law.

During the pandemic.

Speaker 5: Are you seeing that frequency law kind of fade? And is that going away? Is that any data points there? And then I guess just next question, I don't want to make too big of a deal of the loss trend changing from 4 to 5, but does it kind of change your expectation of kind of...

Are you seeing that frequency lull.

It kind of fade and is that is that going away is that.

Any data points there and then I guess just next question I want to make too big of a deal of the loss trend changing from four to five but just.

Does it kind of change your expectation of kind of.

Speaker 5: pulling off the gas in terms of top line growth in certain areas in the near term.

Pulling off the gas in terms of top line growth in certain.

The areas in the near term.

Speaker 3: So just with regard to frequency, and I think I might have been a passing reference to this earlier, frequencies continue to be a little bit below expected, and I would say pretty much across all lines of business, but not nearly as significantly lower than we saw in 2020.

So just with regard to frequency and I think I might have made a passing reference to this earlier frequencies continue to be a little bit below expected and I would say pretty much across all lines of business, but not nearly as significantly lower than we saw in 2020. So generally.

Speaker 3: So, generally speaking, they'd come back up, but still remain a little bit below what we saw pre-pandemic.

Speaking they've come back up but still remain a little bit below what we saw pre pandemic, whether or not that continues I think it's one of the uncertainties that we point to on a go forward basis and I know this this loss trend to increase from 4% to 5% is becoming a focal point and probably appropriately so.

Speaker 3: Whether or not that continues, I think it's one of the uncertainties that we point to on a go-forward basis. And I know this lost trend increase from 4% to 5% is becoming the focal point and probably appropriately so.

Speaker 3: That's an uncertainty that we factor into that decision.

That's an uncertainty that we factor into that decision.

Speaker 3: because we don't, none of us in our business fully understand what a post pandemic environment will look like. And that's not just about driving behaviors. Okay, so miles driven have largely come back. Freements needs have not bounced all the way back. Probably because the time of day that the miles or the log is a little bit different.

Because we don't know.

None of us and our business fully understand what a post pandemic environment will look like and Thats not just about driving behaviors. Okay. So miles driven have largely come back frequencies have not bounced all the way back probably because the time of day that the miles are being logged as a little bit different you could also suggests.

Speaker 3: You could also suggest on the general liability side that the dramatic increase in online shopping might be a more permanent shift. So therefore, in-store traffic and parking lots might not be the same as it used to be. That might be a permanent shift that lowers frequencies. And then the question is if frequencies are more permanently lower, what does that mean for severities? And how much of the severity increase was purely driven by the drop-in?

On the general liability side that the dramatic increase in online shopping might be a more permanent shift so therefore and store traffic.

And traffic and parking lots might not be the same as it used to be that might be a permanent shift that lower frequencies and then the question is your frequencies are more permanently lower what does that means for severities and how much of a severity increase was purely driven by the drop in frequencies versus other macro factors.

Speaker 3: versus other macro factors. So I think that's kind of how we think about it, and that's why we put it in more of the uncertain category. And when there's uncertainty, our response would be to build a little bit more into our forward lost trim, which is what we've done.

I think thats kind of how we think about it and Thats why we put it in more of the uncertain category and when there is uncertainty our response would be to build a little bit more into our forward loss trend, which is what we've done.

Speaker 3: With regard to your other question, and I mentioned this briefly in the prepared comments, we have a very similar level of discipline on new business pricing and new business reselection as we do on our renewal portfolio. We've got great monitors around that. And at this point, we remain comfortable with what we're seeing coming in relative to new business. I think our history has shown, and there have been lines of business or segments where growth hasn't been as strong, and those are cases where we don't feel as comfortable with where the pricing is.

With regards to your other question.

And I mentioned this briefly in the prepared comments, we have a very similar level of discipline on new business pricing and new business risk selection as we do on our renewal portfolio. We've got great monitors around that and at this point, we remain comfortable with what we're seeing coming in relative to new business I think our history has shown and there had been.

Lines of business or segments, where our growth hasn't been as strong and those are cases, where we don't feel as comfortable with where the pricing is.

Speaker 3: in order for us to be significant players in that market. That'll always be our philosophy, and I would say continuous beer philosophy going forward.

In order for us to be significant players in that market that will always be our philosophy and I would say continues to be our philosophy going forward.

Great. Thank you.

Thanks.

Speaker 1: At this time's speakers, there are no questions on cue, you may proceed.

At this time speakers there are no questions on queue. You May proceed.

Well. Thank you all for participating we appreciate your active engagement as always and if anybody has any follow ups. Please feel free to reach out to Ron.

Speaker 3: Well, thank you all for participating. We appreciate the active engagement as always. And if anybody has any follow-ups, please feel free to reach out to Rome. Thank you. Thank you.

Thank you.

Thank you.

Speaker 1: And that concludes today's conference. Thank you so much everyone for joining. Yumi now disconnect and have a great day.

And that concludes today's conference. Thank you. So much everyone for joining you may now disconnect and have a great day.