Q3 2022 Hanover Insurance Group Inc Earnings Call
Good day and welcome to the Hanover Insurance Group third quarter earnings Conference call. My name is Keith and I'll be your operator for today's call.
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I would now like to try to come over to your host today Oksana Luca Charver Charver. Please begin.
Thank you.
Good morning, and thank you for joining us for our quarterly conference call. We will begin today's call with prepared remarks from Jack Roche, Our President and Chief Executive Officer, and Jeff Farber, Our Chief Financial Officer available to answer your questions. After our prepared remarks, Arctic Lady President of agency markets and Bryan Salvatore <unk>.
I didn't have specialty lines before I turn the call over to Jack Let me note that our earnings press release financial supplement and a complete slide presentation for today's call are available in the investors section of our website at Www Dot Hanover Dot com. After the presentation, we will answer questions in the cube.
In a session our prepared remarks and responses to your questions today other than statements of historical fact include forward looking statements as defined under the private Securities Litigation Reform Act of 1995. These statements can relate to among other things our outlook and guidance for 2020 to economic conditions.
Weighted impact, including inflation supply chain disruption evolving insurance behavior emerges from the pandemic and other risks and uncertainties that could affect the company performance and or cause actual results to differ materially from those anticipated. We caution you with respect to reliance on forward looking statements.
And in this respect to refer you to the forward looking statements section in our press release, the presentation deck and our filings with the SEC. Today's discussion will also reference certain non-GAAP financial measures such as operating income and accident share loss and combined ratios excluding catastrophes among others.
There's a reconciliation of these non-GAAP financial measures to the closest GAAP measure on a historical basis can be found in the press release slide presentation or the financial supplement which are posted on our website as I mentioned earlier with those comments I will turn the call over to Jack.
Thank you Oksana and good morning, everyone.
I'll begin by providing some context on our third quarter performance share my perspective on the current industry environment and outline our approach to address the prevailing economic and market pressures.
Next Jeff will review, our financial and operating results by segment outline.
Outline our action plan in detail and provide an update to our financial expectations.
And then we will open up the line and take your questions.
Before I comment on the results on behalf of the entire Hanover team I'd like to acknowledge all those who have been impacted by hurricane Ian.
Members of our claims organization are hard at work doing what they do best to help our customers recover as quickly as possible.
As always I'm very proud of the important work, we do every day to help our customers in their time of need.
As evidenced by recent earning reports our industry is operating in a very dynamic macroeconomic environment.
<unk> inflation and supply chain disruptions turbulent financial markets and losses from Hurricane Ian created a confluence of headwinds for the P&C industry in the third quarter.
As our track record demonstrates we are executing very well on our catastrophe exposure management and continuing to diversify our portfolio over time.
While our risk management discipline and strategic approach to the market enabled us to moderate the impact of recent macro challenges on our results the accelerated pace of inflation and persistent supply chain issues surpassed our expectations.
As a result, we are making meaningful adjustments to our short term pricing and underwriting approaches and are taking specific actions to mitigate the effects of inflation more aggressively all to bring our company back to target profitability and deliver on our financial objectives.
We have a very strong highly regarded franchise and an excellent portfolio of businesses are.
Our company is built to generate superior performance over the long term, we've established a strong track record of profitability and assembled the skills talent and capabilities to address these short term loss trends head on and we're confident the market is responding appropriately to these environmental issues and we remain on track.
To achieve our long term financial targets.
We will continue to execute on our proven growth strategy focused on a differentiated agency and customer approach, while also putting a laser focus on margin improvement and certain businesses to address the recent changes in the overall environment.
In the quarter the effects of inflation were most pronounced in our personal auto homeowners and CMP property lines. Additionally.
Additionally, we experienced an increase in large losses in CMP with inflation and supply chain issues magnifying the effect on loss costs.
Jeff will elaborate on the impact on each business in more detail, but to be clear. Despite these temporary challenges we remain very comfortable with the quality of our book of business, our risk selection and our underwriting discipline.
From that perspective, we are pleased with our overall performance year to date our.
Our resulting ROE of 10, 5% the execution of our strategic priorities and our topline results in the third quarter.
We generated net written premium growth of nine 5% in the quarter with healthy production indicators across each of our segments.
Our core commercial business grew five 9% led by renewal price increases of 11, 2% driven.
Driven by double digit increases in both our small and middle market businesses.
Rate increases accelerated 40 basis points sequentially to seven 3% and strong retention indicates we have additional opportunities to take even more rate in the future.
Our specialty team continued to build on its momentum achieving growth of 12, 6% underscoring the strength of our agent partnership model and our ability to access high margin specialty business.
The investments we have made in our specialty capabilities have proven to be high yielding enhancing our relevancy and enabling us to pursue an even better balanced between property and casualty risks over time.
In the third quarter, we achieved robust rate increases of 8% across our specialty book with price increases, including exposure of 12, 4%.
This highly diversified and specialized portfolio enables us to offer our retail agents one of the broadest range of products in the small to midsize market.
In that vein, we continue to expand our offerings and we remain on track to complete the nationwide rollout of our specialty general liability product before year end.
Additionally, we were extremely pleased to see strong renewal retention and robust growth contributions from surety specialty P&C and marine.
Moving to personal lines. This business grew net written premiums by 11, 3% with an average renewal pricing increase of seven 3%.
Sequential Pip growth of one 5% and continued strong retention.
Of course, we expect our personal lines policy growth and retention to moderate as we implement additional rate and other pricing actions in the coming quarters.
Looking ahead, we are working diligently on a series of actions designed to enable us to return to prior target margins and affected personal and core commercial property lines.
As I indicated earlier, we have a high quality book of business, but we need to make appropriate adjustments to address the current rapidly changing external environment.
Many of these actions are already being executed they are focused on three key areas pricing insurance to value adjustments and targeted underwriting measures.
First our most effective response to higher inflation is to increase rates and we are aggressively stepping up these initiatives and property lines.
Prospective rate increases must exceed loss trends for us to achieve our targeted combined ratios.
We are moving quickly and have already stepped up our filings and made further automatic inflation adjustments for property exposures across all states.
We expect these actions to result in personal lines renewal price change of approximately 10% in the fourth quarter and to further accelerate to the low teens in 2023.
A disciplined strategy is essential in the current environment and our superior agent partnerships and market position will enable us to hit our pricing targets.
Second.
We are further implementing robust insurance to value adjustments in sectors and geographies that are most dramatically affected by the elevated costs.
These actions target insured valued adjustments beyond those embedded in the automatic statewide inflation guard factors.
And our tailored to specific risks that are experiencing accelerated property valuations, including elevated business interruption exposures.
Third we are implementing targeted underwriting actions to better position our quality book of business in light of the recent changes in the socio economic environment.
These changes include enhancing underwriting guidelines exclusions.
And targeted agency management.
We are also extensively using innovative tools and technology to increase our underwriting precision and reduce exposure to certain undesirable risks those that will not meet our profitability expectations, even with additional rate.
We are intently focused on the personal lines and commercial property pricing environment as we execute on our plans to recapture industry, leading top to your margins.
We do not see any signs of softening in the market conditions that would impact our portfolio.
Inflation and supply chain issues are pervasive and impacting all primary insurers re.
Reinsurers are signaling strength of property capacity, particularly after hurricane Ian which also bodes well for continued firming and discipline in the primary market.
In personal lines, we are experiencing one of the hardest markets in history, and we are well positioned to improve margins at an accelerated pace.
In virtually any macroeconomic environment, and particularly now the market favors welbilt companies with enduring business discipline.
Through solid growth a sound reserving philosophy and thoughtful financial stewardship. Our company has consistently proven that discipline and we will continue to apply our superior skills and disciplined approach, while we further worked through inflation and other evolving pressures.
As we contemplate our past performance and our future opportunities I have every confidence our experienced and talented team are highly responsive and collaborative culture and our unique business strategy will enable us to drive superior performance well into the future.
With that I will turn the call over to Jeff.
Thank you Jack good morning, everyone.
For the third quarter after tax operating income was $35 7 million or <unk> 99 per share our combined ratio was 101%, reflecting higher than expected inflation supply chain pressures and the impact of catastrophes. Excluding catastrophes. The combined ratio was 94 two.
2%.
I'm going to walk you through the key drivers of what impacted our business in the quarter as well as the actions, we're taking and their expected outcomes.
Task Trophee losses of $90 million or six eight points of net earned premium included $28 million from hurricane Ian and are likely better than the industry loss experience.
A relatively modest cat loss experience from hurricane in which was largely isolated to our commercial lines property book in Florida underscores the effectiveness of the exposure management and portfolio diversification initiatives that we executed in prior years.
Our catastrophe risk premium in Florida is negligible totaling less than 5% of our countrywide direct written premiums.
Catastrophe losses in personal lines during the quarter were primarily related to wind and hail events in the Midwest.
Our results in the third quarter included favorable prior year reserve development of $4 million, primarily driven by specialty lines.
We anticipate social inflation to reemerge fully and liability coverages and as such our team continues to Vigilantly monitor the litigation environment. We continue to believe that some of the macroeconomic headlines around medical and wage inflation warrant the utmost caution as we prudently set <unk>.
<unk> and longer tail lines.
Yeah.
Our expense ratio for the third quarter of 2022 was 34% an improvement of seven points from the prior year quarter, driven primarily by growth leverage and reduced incentive costs. We are pleased with the 50 basis point improvement in the year to date expense ratio from the prior year peer.
<unk>, which reflects a beat to our expense ratio target.
Moving on to a discussion of our underlying underwriting performance.
Our overall current accident year loss ratio, excluding catastrophes was 64, 1% in the quarter, which was approximately five points above our original early 2022 expectations and.
And about four points higher relative to the outlook, we provided in our second quarter 2022 earnings call.
At a high level out of the five points personal auto contributed two points and home added one five points, while CMP accounted for the balance including large losses.
About four points of the five were driven by inflation and supply chain delays of which about one point represented a re estimation of first and second quarters claims on personal lines property in summary about three five points of the loss ratio increased during the third quarter relative to our.
Early 2022 expectation is the short term challenge that needs to be addressed.
And it has our full focus.
Now looking at our results by business, starting with core commercial.
The core commercial current accident year loss ratio, excluding catastrophes was 61, 7%.
50 basis points higher than the third quarter of 2021 as both periods included higher property large losses than our historical averages.
Relative to our February 2022 expectations, the underlying loss ratio in the third quarter of 2022 was four points higher driven by one increased property loss severity stemming from inflation and repair delays and the resulting elevated business interruption losses and <unk>.
Two a higher incidence of property large losses in certain areas of the book.
Some of the large losses were aberrant, but we believe a portion of this loss activity reflects some recent environmental changes, including commercial properties with reduced occupancy and an experienced workforce.
Insistent with Jack's earlier comments, we are taking actions through pricing insurance to value adjustments and some targeted underwriting changes.
First with respect to pricing, we achieved core commercial renewal price increases of 11, 2% in the third quarter consistent with the second quarter of 2022.
Underlying property rate was seven 6% with pricing up 11% we.
We are continuing to seek substantial further rate increases, which we believe will be supported by the market in light of broader environmental challenges and lack of property capacity in the market.
We upped automatic statewide exposure increases in many states at the same time, we are using risk specific insurance to value adjustments to complement renewal increases to certain property risks.
Through various exposure adjustments, we've already added $28 million in premiums to date and expect to add an additional $6 million over the next three months.
Additionally, we continue to make enhancements to our underwriting strategies, we are tightening criteria within our targeted underwriting risk appetite to restrict new business and renewals and select challenged industry classes and updating underwriting guidelines.
In the beginning of the year, we identified approximately $25 million of middle market commercial property business with unattractive characteristics, which we have or are planning to non renewal from this portfolio.
This should improve CMP profitability by approximately one five points next year all things equal.
We proactively manage portfolio risk in our property book of business through the use of proprietary analytics risk solutions experts and third party data, which results in our ability to identify specific sectors and risk that we exclude from our underwriting appetite on an ongoing basis of.
Of course property business is subject to volatility quarter to quarter, but we are confident that these actions will improve the underlying profitability of the core commercial portfolio.
Turning to specialty this business delivered excellent results for the quarter, while growing at double digits.
Current accident year loss ratio, excluding catastrophes was 53, 6% compared to 52, 7% in the prior year quarter from lower than expected loss activity in our marine and specialty industrial property businesses in the third quarter of 2021 like in other property lines, we are seeing the impact.
From inflation in this business, but it is effectively offset by higher rates exposure growth and is also helped by our highly diversified nature of underlying risks inside this business. We have established an outstanding track record and specialty based on a prudent growth strategy and enviable market.
<unk> and above target returns, we are very pleased with the current profitability in specialty underscored by a combined ratio of approximately 89% for the quarter and year to date.
Turning to personal lines.
The business delivered a combined ratio excluding catastrophes of 98, 2%.
Personal lines auto current accident year loss ratio, excluding catastrophes was 78, 8%, which is six points above our expectations for the quarter based on our updated assumptions exiting Q2.
It was primarily driven by a change in our inflation assumptions on auto property coverages, while used car prices seem to have softened slightly the increased cost of repairs, specifically parts and labor along with repair delays contributed to higher severity in the third quarter.
Additionally, in the third quarter, we lowered our subrogation recoverable assumptions for all three quarters of the current year Sim.
Similar to many others, we previously attributed lower subrogation cash flows to delay in payments and turnover and staffing. However, we have seen indications that it is related to a shift in claims mix to a higher proportion of single vehicle accidents with no subrogation opportunity.
Approximately three points of the auto loss ratio in the third quarter was attributable to re estimation of first and second quarter 2022 claims to align with our updated view of ultimate severity and subrogation assumptions.
Right as the most effective tool at our disposal to improve profitability in personal auto.
We took renewal pricing increases of four 1% in the third quarter and additional pricing actions are already well underway beyond those we discussed in our Q2 call.
We expect average renewal premium change of 7% in Q4 and double digits in 2023.
For the fourth quarter, we essentially doubled our rate filing activity as we pushed through barriers and historically more difficult regulatory states.
Our largest markets, including Michigan, Massachusetts, and most northeast states are the most profitable.
Our recent upper single digit rate increases in these states are appropriate and they will be reflected in our book of business for the next six to 12 months.
We will accelerate our rate filings in other states to bring price increases to mid teens and some of these states with an expectation to increase our overall countrywide renewal premium change in auto to double digits in 2023.
The market is clearly harden in these geographies and we are confident in our ability to execute this plan.
New business pricing is also a critical driver for our auto plan.
As we have shared in the past, we achieved aggressive new business increases through the first two quarters of the year. The third quarter marked a continuation of the upward trajectory with increases of approximately 12%.
Looking ahead, we have increases of approximately 15% planned for the fourth quarter.
These meaningful increases, albeit on about 15% of our book should drive about two points of the overall earned rate increase next year contributing to the profitability of the line.
At the same time, we are pursuing non rate actions to supplement the acceleration of our profitability improvement in auto including increased non renewals tightening underwriting around accident in violation history and agent management.
In homeowners inflation related severity and higher frequency of non weather related water losses drove an increase in the underlying loss ratio of about seven points relative to our updated expectations exiting Q2 to 62, 6%.
Increase in severity represented four points, which is inclusive of two points of first and second quarter claims re estimation, while we certainly expected increased inflationary pressures for the rest of the year, the 20% plus increase we observed in paid severity in the third quarter was well above our.
Asian. Additionally.
Additionally, approximately two points of the variance was driven by higher frequency of non weather water claims as the cost of repairs on more routine household incidents increased we have seen incidents that previously homeowners took care of themselves now more often result in claim.
<unk>.
In response to these trends we are accelerating pricing increases in homeowners beyond what we discussed in Q2.
As evidenced by robust renewal premium change of 12, 1% in Q3.
We anticipate additional pricing increases of 15% in Q4 and 17% in Q1 2023.
We continue to lean into automatic state by state replacement cost increases to achieve the needed exposure changes, which is now about 9% compared to historical levels of 2% to 3%.
Additionally, a subset of policies received specific adjustments on top of statewide adjustments.
<unk> alone on these policies is forecasted to yield up to two five points of incremental renewal premium change for all homeowners over the next 12 months.
As an account writer, we look at overall profitability of the personal lines business. We have line of sight to steady improvement in this book of business from the current levels with rapid improvement in homeowners in 2023, and a more paced progression in auto as current and future rate actions continue to earn in.
While some of the residual auto frequency benefit reduces from early 2022 levels.
Of course this outlook is dependent on a more normal historical pace of inflation from here forward.
Now moving to a discussion of our balance sheet and investment portfolio.
Net investment income was $73 million for the quarter up $2 5 billion sequentially on the strength of higher than planned new money yields and increased cash flows.
Partnership income in the third quarter. This year was in line with our original expectations, despite lower equity multiples and wider credit spreads in the public markets in Q2 of this year due to a sizable monetization of one of the partnership assets.
We will be watching this asset class in the fourth quarter in view of the Q3 public market movements.
The current rising interest rate environment continues to be a very meaningful positive for net investment income over the longer term as the portfolio turns over and is reinvested at higher interest rates.
As of today's call new money yields are accumulating on the order of 300 basis points higher than what we expected in the beginning of the year, adding meaningfully to our fixed income expectation for next year.
Looking at fixed income portfolio valuations, we typically hold fixed income securities to maturity and therefore, we are not overly concerned with temporary interest rate driven movements in the market value of the portfolio.
The increase in interest rates has allowed us to invest portfolio cash flows at attractive market yields and at higher quality.
The results in the quarter also reflect a non operating after tax charge of $11 3 million of losses on intent to sell certain fixed income securities due to a planned transfer of investment management responsibilities of a small subset of the portfolio to an external manager.
In terms of our internally managed portfolio, we have not made material changes to our long term allocation and remain very comfortable with our positioning however, we have reduced duration and improved quality as investments mature.
We continue to take a balanced approach, making prudent choices, given rising risk of economic slowdown and ongoing market volatility.
Looking at our equity and capital position investment valuations continue to be reflected in our shareholders' equity lowering book value per share 10, 5% to $64 59 from June 32022.
Statutory capital remained relatively unchanged in the quarter at $2 7 billion.
Since the end of last year as investment losses on equity securities and $100 million dividend payment to the parent was nearly offset by insurance company earnings we remain disciplined and balanced on our capital management priorities and committed to being strong stewards of our capital.
Turning to guidance, we expect full year 2022 combined ratio, excluding catastrophes to be in the range of 92 to 92, 5%.
Our cat load for the fourth quarter is 4%.
This outlook includes a typical seasonal decline in the home loss ratios and an increase in the auto loss ratios, all things equal continuation of loss trend and inflation levels as well as an expectation that some of the large loss experience will reoccur as pricing in.
Underwriting actions are being executed.
To summarize while considerable swift changes in the macro environment and created an adjustment to our previous short term trajectory. Our underlying book of business is solid our action plan is robust and execution of the plan has our full and undivided focus.
At the same time with the current new money rate for investments so much higher than we had originally planned for 2022, our investment portfolio provides a meaningful lift to net investment income in 2023, and even higher in 2024.
As we look ahead, we are laser focused on restoring our underwriting margins to target and also on our long term targets for operating ROE to deliver increased value to our shareholders.
With that we will now open the line for questions operator.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Speakerphone, please pick up your handset before pressing the case.
Sorry. Your question. Please press Star then two.
At this time, we will pause momentarily to assemble the roster.
And the first question comes from Matt <unk> with JMP Securities.
Hey, Thanks, good morning.
Good morning.
First question, Jeff I wanted to go back to your comment on expense ratio and how that can give us 50 bps of improvement is ahead of expectations.
Can you expand on that a little bit there are.
Some one timers in there that that kind of got you to where you are or does it make you or is it more sustainable whether it be premium growth or otherwise kind of the leverage from it that that makes you feel even better about kind of the guidance you've given on a go forward basis being able to achieve it.
Thanks, Matt.
Notwithstanding the environment for talent in other <unk>.
Pressures on costs I think the earned premium growth that we're seeing in the quarter is really helping us out a lot on the expense ratio and then on top of that we had some reduced incentives both agent and employee in the quarter relative to the current performance. So I think some of that is sustainable and such.
That might be viewed as a one time.
Okay, Great and then one more if I could.
Jack you've spoken in the past about the specialty business.
And I'm thinking about how you've had a lot of kind of existing core commercial customers that buy.
By a lot of specialty products elsewhere, and that that was kind of viewed as a really good opportunity could you just update us on kind of the success that you've had there in terms of.
Kind of bringing that package together for a number of customers or if a lot of the growth has been.
New customers on a standalone basis.
And it hasn't been as successful.
Yeah. Thanks, Matt.
A couple of comments, but I'd love for Brian to elaborate quickly.
Our success in specialty really.
Comes from a combination of both of those.
Dimensions that you talked about.
<unk>.
Much of our success comes from small to mid sized customers that buy specialty coverages separately.
But very much through the independent agency channel direct to carriers and our operating models in our products and the way in which we work together with our core commercial folks in the field.
Is what gives us access to that business, we are increasing our success on cross sell or multi line exposures.
But really our opportunity going forward is to continue really in both areas. So Brian I don't know if you want to say a few more words about that yes, sure and thanks again, Matt Yes.
One thing I can share is that in our region and our underwriting team.
Ongoing deliberate effort to bring in what we call that total Hanover experience to our customers in Asia, and we're definitely seeing the progress.
One thing that may be worth highlighting is when we think about new product development.
Sort of the central driver right.
And bringing that total had over experience. So just two data points right.
Two of our newest areas, our retail E&S business.
And one third of that business.
Britain with customers that are existing.
And then our newest area.
General liability.
50% of our policy.
With customers. So we feel really good about the progress we're making ongoing progress.
Great Super helpful. Thank you for the color.
Thank you and the next question comes from partners on what type of Sandler.
So I mean, good morning wanted to ask a little bit for a little bit more color on the.
So the change that happened from an inflationary perspective across your book.
Fair to say that essentially what happened is that you had an assumption for.
Please inflation, but it <unk>.
Further than you expected.
In the quarter and that's what the true ups.
Higher levels of expectation for claims perspective.
Is that a fair assessment.
I think that's pretty fair most of it was in auto and home and we had assumptions about gross severity in auto and we had assumption about subrogation and salvage.
And we revise those assumptions, we talked about that earlier in the prepared remarks and that there was a knock on effect, which needed to be addressed for the first and second quarter and then in home. It was a combination of some increased severity from from <unk>.
Materials, and labor and things like that it had its knock on effect and then we saw some elevated non weather related water type losses think about things like <unk>.
Toilets, or washing machines or other internal things that are leaking and causing damage and basements things like things of that nature.
So as we look forward.
Your expectations for both pricing and reserving.
We have an expectation that youll see.
A moderation in the claims inflation it sounds like we will comment that that's the case.
Maybe you could talk about why.
We would see a moderation in claims inflation, maybe just how much you think that moderation.
Yeah. Paul This is Jack let me, let me get that.
Response started I think overall, what you should see is that where we're going to exercise the proper level of humility around how the combination of inflation and supply chain and other factors are exacerbating.
Some of the property and physical damage related trends.
Think we're much more on top of not only those.
Those trends, but also some of the claim mix changes that we spoke to in our.
Our prepared remarks that start to influence the severity.
Beyond just.
The multiplying effect of it.
Inflation and supply chain. So I think we are clearly much more aware of how those all of those changes are impacting our costs.
We're not going to make any predictions about where inflation goes from here.
We're going to assume in our pricing and our underwriting actions that the current environment is what it is and frankly, we have a market by which we can move very very quickly and enhance our pricing to deal with these.
At least short term trends that were experiencing so.
I don't want you to mistake that to mean that we're not looking for how those trends evolve from here both positively and negatively.
But our assumptions and our actions right now are that the market or the environment is what it is and we need to price aggressively.
To get there. So we have an action plan, that's well underway.
And our personal lines team and frankly, our core commercial team on the property side.
Are going at it extremely hard Paul or Jeff just to add to that a little bit. So yeah. As you know our action plan is very specific so we're going after strong renewal price change.
Excellent new business increases and those are really ramping up and have a tremendous year over year impact.
Getting ITV increases in inflation across the book, particularly in home and even in commercial and some selected underwriting actions. So we're optimistic about the trajectory and how we deal with the inflation going forward.
Thank you very much.
Always appreciate the help.
Thank you Paul.
Thank you. The next question comes from Greg <unk> with Bank of America.
Hi, everyone.
Good morning, Greg.
So the specialty.
Segment, clearly did pretty well in the quarter.
Been doing pretty well year to date I was just wondering if you could help us think through the rest of it some of these inflationary pressures that we've seen in other segment.
Now onto results in that.
One as well and just any sort of I.
Barriers to protect the margins in that segment.
Relative to recent levels.
Yeah, Thanks, Nathan ill be the first to react to that this is Brian .
<unk>.
Yeah, Thanks, Jack mentioned it before right.
Surely see summit.
The inflationary pressures.
John really diversified book and that really helps sort.
Sort of the sustainability of the results right.
Nine different.
This is over 20 different product areas that have a blend.
Surety business to professional liability and management liability and that diversification.
Has been proven to be very helpful. As we can fund completion.
But I will add if you look at our ratios Friedman pushing rate change.
One eight quarters in the 8% range.
And that was our being thoughtful about social inflation and trying to stay on top of it and so we feel good about what we're doing there.
Yes, I guess this is Jack the only thing I would add to that is that when you look inside of our specialty portfolio not only is it multiple products in multiple businesses, but even in marine and our HSI business are especially industrial business.
It's diversified within that and not all of those products and exposures are.
As susceptible to inflation as you would see for example in our core commercial.
Business one area that we pointed out in core commercial that is really exacerbating as this business interruption.
<unk> and we really don't have.
That type of exposure for example in our large marine business that gets exacerbated during during this period. So so it's a mixture of property and casualty.
Diversification, but as well as different type of property business that resides in our specialty business.
Thank you.
And on the commercial side I mean, you mentioned the three underwriting actions going on in that book.
It seems the Cosby.
Net premiums written growth to be a little bit lower than the total.
Pricing change that.
That you achieved in the quarter I guess, just looking forward how should we think about sort of the topline in that book trend as we think about the tension between ongoing rate and pricing actions and.
Just.
The movement in <unk>.
Underwriting.
Accounts that might need a little bit of margin help.
Yeah. Thanks, Chris This is <expletive> so when we think about the growth of our core commercial business, you really need to think about the two different segments.
Small commercial business has been growing in the.
Low double digits, and we expect that to continue with the investments that we've made in our platform and the engagement we have with our our agents.
And so that that's all systems go our middle market book is.
The growth that we've done some underwrite re underwriting in but it's a small percentage of that $25 million that was mentioned in the prepared remarks.
Get that are very targeted segment.
You should expect to see growth in that segment in that mid single digit range going forward, we think thats prudent.
We have.
With thoughtful growth plans by geography by industry segment.
Targeted whereas our small commercial as a broader base.
Set of classes.
Thank you.
Thanks, Greg.
Thank you and our next question comes from James Block with K VW.
Hello.
I wanted to go back to the core commercial lines pricing acceleration in some cases I wanted to know across the book, which lines our rate increases are accelerating and outside of workers' compensation, which are potentially slowing.
Yes. This is Jack I'll, just get started and then <expletive> to quickly elaborate I think one of the things. We're most proud of is that even I think when many have been talking about commercial lines pricing and doing a little but for workers' comp. We really have not done that we haven't been able to try to squeak out some pricing in <unk>.
<unk> comp.
And not.
<unk>.
Kind of use that as an excuse because we do believe the workers' comp trends will eventually.
Become more normal if you will and you need to be thinking about pricing over those loss trends that said I think the biggest difference.
<expletive> can elaborate on is the property coverages right, we've been getting good solid pricing overall, but as we see the property coverages.
Requires more and more rate and some additional re underwriting we're going at it extremely hard.
Exactly right our property plan is.
Lean into those rates.
Cross the country.
Both the small and middle market business.
I would just say that the market is bearing the kinds of rates that were.
Putting forward the Retentions look good so.
We know that the messaging we are hearing from the reinsurance.
Providers.
Are going to continue to push rate from their end and we'll do the same.
We're leaning into that hard.
Alright, and obviously that you cited.
Accelerating inflationary pressures and then you also mentioned some caution with respect to medical inflation I just wanted to get a sense of how your views on medical inflation or potentially.
Holding in light of some of the other the other views on inflation.
Yes. This is Jack again, I would say that we're watching medical inflation more than seeing any concerning short term trends.
And so <unk>.
Clearly in areas like worker's compensation, we have fee schedules and other things that that keep that from emerging too quickly.
But in the liability lines, we are watching carefully to see.
Whether there are some adjustments in the medical cost themselves or the types of procedures that ended up exacerbating medical inflation over time, but I can't say that we've seen anything in the short term.
That is greatly concerning but we've been prudent with our loss picks and both prior year and current year on the casualty lines to prepare for that James.
Well, thank you cover that.
Thank you.
Thank you and the next question comes from Michael Phillips with Morgan Stanley .
Thanks, Good morning.
Anything you can share on the specialty side.
A little bit of a modest slowdown in our retention is there anything you can talk about.
I'm sorry, Mike.
Talking about specialty retention specialty, especially retention, yes, yes.
Yeah. This is Brian .
To your point there is a slight slowdown.
CBRE intend it quarter over quarter.
We are watching it very very closely.
As I mentioned before and we continue to think that that 80.
8% rate change and appropriate.
Can you push towards that and then we're just watching what's happening in the marketplace flashing what's happened with our retention.
If there's any real slippage, but I.
I can look at the quarter, but also related to an accomplished for the full year.
Right now I would say overall, it's holding up pretty well and Mike. This is Jack I think also I think we've said this in previous calls there are aspects of our specialty book that are kind of anomalous in terms of how retention.
It comes through so for example, we write a lot of.
Builder's risk in marine which is non not renewable premium.
Surety and the way that that business gets booked with new bonds or come through for existing customers.
That has an impact on renewal attention. So what youll see overall is that we have really robust retentions and specialty.
The nature of the products.
They'll come through at a lower retention than say a core commercial book.
Okay. Thanks that makes sense.
And Jeff in your prepared remarks, you mentioned.
The phrase it sounds like youre, pushing through some barriers and difficult states anything to elaborate there what you meant by that.
It's always a process, we've got 20 different states for personal lines and obviously every state for commercial but at this point, we're feeling really good about the states that we're in and our ability to take rate and we don't see any barriers there to get what we need.
Okay. Thanks.
Thank you Mike.
Alright, it looks like.
It looks like there was no one in the queue Mike.
Your first question.
Okay.
It seems to come back into the audience.
Alright. So thank you very much for all of your participation today and we're looking forward to talk to you next quarter.
Thank you.
France has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.