Q3 2023 Selective Insurance Group Inc Earnings Call

November 2, 2023

Good day, everyone welcome to selective insurance group's third quarter 2023 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, Brad Wilson.

Thanks, and good morning.

Uh huh.

On our website selective dot com and a replay will be available until December one.

We used three measures to discuss our results and business operations.

First we use GAAP financial measures reported in our annual quarterly and current reports filed with the SEC.

Second we used non-GAAP operating measures, which we believe makes it easier for investors to evaluate our insurance business.

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

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

Adjusted book value per common share differs from book value per common share by excluding total after tax unrealized gains and losses on investments included in accumulated other comprehensive loss or income.

GAAP reconciliations to any reference non-GAAP financial measures are in our supplemental investor package found on the investors page of our website.

Third we make statements and projections about our future performance.

These are 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.

We discuss these risks and uncertainties in detail in our annual quarterly and current reports filed with the SEC.

We undertake no obligation to update or revise any forward looking statements.

Now I'll turn the call over to John <unk>, Our chairman of the Board President and Chief Executive Officer.

Mark Wilcox, our executive Vice President Chief Financial Officer will follow John.

Good morning, and thank you for joining US we delivered strong earnings in the third quarter with excellent top line growth.

Our annualized non-GAAP operating ROE was 15%, bringing our year to date results of 13, 2%.

This puts us ahead of our 12% operating ROE target as we strive to consistently meet or exceed it.

We continue to see a meaningful increase in ROE contribution from investment income and solid underwriting performance.

With a quarter ago, we are well positioned to deliver our 10th consecutive year of double digit operating Roe.

Since 2014, our average operating ROE is 12% fewer.

A few in our industry can match those track records.

As we proved across price pricing cycles over the past dozen years, we have consistently achieved renewal pure rate equal to or exceeding expected loss trends.

We are focused on ensuring this continues going forward as we manage our new and renewable portfolio.

The ability to underwrite at a granular level enabled by sophisticated tools as a key reason for our strong and stable underwriting performance over time.

We have highlighted the industry's elevated uncertainty of loss trends influenced by economic inflation, social inflation, the unusual frequency and severity patterns, resulting from the pandemic at a heightened frequency of catastrophe losses.

These factors have put pressure on loss cost necessitating continued industry focus on adequate pricing.

We achieved standard commercial lines renewal pure price increases of seven 1% in the quarter and six 9% year to date versus our expected loss trend of six 5% coming into 2023.

Our 2023 accident year loss estimates are generally holding up as expected, but pockets of pressure exists, particularly in personal and commercial auto liability.

Mark will discuss some of the actions we have taken.

Within general liability, we've been embedding higher severity picks in our initial estimates in recent years and they have come to fruition.

Lower free Quincy has largely offset the higher severities in the most recent accident years.

Favorable frequency trend moderates and severity as emerge higher than expected, we could see additional pressure on this line.

We believe this is an industry wide dynamic and therefore expect pricing to reflect these elevated trends.

Despite the higher interest rates that are providing a meaningful tailwind to investment income we are maintaining our long term target combined ratio of 95% midstream.

This reflects elevated uncertainty about emerging casualty loss trends inflationary impacts in property and increased weather event frequency.

Standard commercial lines and excess surplus surplus lines, representing approximately 90% of our business are running at this target or better due to our consistent efforts to achieve renewal pure price consistent with expected loss trends.

As a result, we can avoid more draconian actions that some competitors may be to take to address profitability challenges this dropping their customers and agents.

The remaining 10% of our business standard personal lines is clearly short of target profitability, which we are addressing through aggressive rate increases.

These final rate increases began to take effect on a written basis during the first quarter of 2023.

We expect our overall written renewal rate will be approximately 9% in the fourth quarter and in the range of 20% to 25% in 2024 subject to regulatory approvals as.

As we file these rate changes we are also refining our pricing for both cat and non cat perils, including severe convective storm.

At the same time, we are seeking to further improve homeowners performance through terms and conditions.

We are introducing actual cash value rather than replacement costs on older roofs and.

And in states most exposed to severe convective storm, we are implementing mandatory wind and hail deductibles. We expect these and other coverage changes to take greater hold as the market continues to evolve.

Finally, we are taking further actions to accelerate the migration of the portfolio to our target market, which presents greater potential for long term profitability.

Overall topline growth continues to be excellent.

Our distribution partners appreciate our franchise value open communication and consistent approach to managing rate and retention.

And total net premiums increased 17% in the quarter to $1 1 billion.

And we are on our way to exceeding $4 billion in annual premiums for the first time in our nearly 100 year history.

Across all our segments renewal pure price was 7% for the quarter and new business grew 26%.

New states since 2017 added approximately two points to premium growth in the quarter.

And our flagship standard commercial lines segment net premiums written grew 15% in the quarter with 13% growth in new business.

Notably the commercial lines marketplace continues to be constructive.

As evidenced by our renewal pure price of seven 1% in the quarter and strong retention of 86%.

Manageable policy count growth of two 5% also contributed to the top line.

During the quarter property renewal pure rate was up 12, 3% with exposure increasing four 7%.

And total renewal renewal premium up 17, 6%.

In commercial auto renewal pure rate was nine 6% with increased exposure of four 3%, resulting in a 14, 3% total renewal premium increase.

Geographic expansion continues to provide us runway to expand our business and diversify our portfolio.

Our deliberate approach to adding new stage has manifested in a repeatable process and generated strong results we.

We are adding west, Virginia, and Maine to our commercial lines footprint in the coming months and are excited to announce we expect to launch Washington, Oregon, and Nevada in late 2024.

Ultimately, we plan to raise standard commercial lines and most of the contiguous United States.

Excess and surplus lines continues to perform very well with 25% premium growth in the quarter and an excellent all in combined ratio of $83 nine or <unk> 84 on an underlying basis.

For the first nine months premium growth was 21% with a combined ratio of $89 seven and underlying combined ratio of $82 five.

I'll now turn the call over to Mark to review, our financial performance in more detail.

Thank you John and good morning, we reported a $1 42 per fully diluted EPS in the third quarter up 115% from a year ago at $1 51 of non-GAAP operating EPS up 53% year to date fully diluted EPS was $3 83 up 77% compared to the prior year period, our non.

<unk> operating EPS was $3 95 up 11%.

This quarter significant growth in after tax net investment income and stable underwriting margins drove outperformance.

Our consolidated combined ratio for the quarter was 96, 8%.

With after tax net investment income up 56%, we generated a healthy 15 percentage points of operating ROE up four to five points from a year ago. When we reported the same 96, 8% combined ratio.

Despite our strong operating ROE driven by higher net investment income or <unk>.

Youre expected combined ratio of 96, 5% is above 95% longer term target. Therefore, we will remain disciplined as we look to achieve our longer term underwriting margins.

The third quarter was another frequency driven catastrophe quarter with 23 designated cats impacting our results, bringing the year to date total to 60 events catastrophe losses was 65 million or six six points on the quarters combined ratio.

No single stall was significant with the largest event resulted in ultimate net losses of $8 million.

As a result of the higher than expected cat losses in the quarter. We have increased our full year catastrophe loss ratio guidance from six points last quarter to six five points.

Did not report any net favorable prior year casualty reserve development in the quarter, while our workers' compensation line continues to show favorable claims emergence with $7 million of favorable prior year Casualty reserve development.

This was offset by unfavorable development of $4 million in commercial auto and $3 million in personal auto.

As John described we are closely monitoring casualty lines and continuing our practice of full reserve reviews, each quarter for all major lines of business to stay abreast of emerging trends.

As it relates to the current accident year, we took action in our personal auto line in the quarter, increasing loss costs by $4 9 million or five two points on the postal lines combined ratio.

We also added $4 million in commercial auto increase in the third quarter combined ratio with half a point sustaining commercial lines. We expect these higher loss picks in these lines to continue this year.

The underlying combined ratio was a very profitable 90% to 92% for the quarter four to five points lower than a year ago.

Non cat property losses of $17 six points with two points better than the $19 six points in the third quarter of 2022.

And a bit better than expected.

So a lower expense ratio contributed one seven points of improvement.

While our fixed controllable expense dollars were right on budget for the quarter and year to date, our expense ratio continues to benefit from strong premium growth year to date, our expense ratio was 31, 6% 80 basis points below the same period in 2022 and in line with our longer term target over the medium and longer term we will.

To drive operating efficiencies and manage our expense ratio, while ensuring we continue to make the significant investments necessary to support our strategic objectives.

Regarding our insurance segments I would highlight the strong underwriting performance in standard commercial lines, which had a 94, 7% combined ratio and underlying combined ratio of 94% and 15% net premiums written growth.

Our E&S segment also had an excellent quarter with 83, 9% combined ratio and underlying combined ratio of 84% and net premiums written growth of 25%.

Personal lines had another quarter of elevated catastrophe losses higher than expected non cat property losses modest adverse prior year development and continued pressure on the current accident year in personal auto.

As John discussed we are addressing this with aggressive rate and underwriting actions.

The bright spot with the expense ratio, which came in lower than the run rate due to our flood business.

Write their own flood business, we continue to grow and take market share due to our servicing and technology capabilities and as a result, we received a healthy growth bonus which was earned this quarter a benefit of the expense ratio.

Turning to investments after tax net investment income for the quarter was $80 2 million up 56% from a year ago. This reflects our work over the last 21 months to aggressively manage the fixed income portfolio and build book yield of the rapidly rising interest rate environment.

The start of the rise in benchmark interest rates 21 months ago, We've put $4 8 billion to work in fixed income and our results are benefiting from these actions.

The after tax yield on the total portfolio was three 9% for the third quarter translating to a strong 13, one points of investment AOI contribution up from eight nine points in the third quarter of 2022.

Alternative investments reported on a one quarter lag generated $5 1 million of after tax income up $9 5 million for me from a year ago is $4 $4 million loss.

Our portfolio remains very well positioned as of September 30th 92% of the portfolio was in fixed income and short term investments with an effective duration of four one years risk assets for approximately 10, 6% of the portfolio up modestly from last quarter at the low end of our target range.

During the quarter the average credit rating of our fixed income and short term investments declined modulate to a plus from double a minus to decrease in the average credit quality was driven by Fitch downgrading, the United States long term issuer default rating to double a plus for the AAA in August in the future, we expect our credit quality to remain.

And the a plus a double a minus range importantly, our investment strategy and underlying credit quality is unchanged.

We continue to find attractive opportunities to deploy new money into high quality securities, while increasing the portfolio's book yield.

During the quarter, we invested $443 million of new money at an average pre tax yield of six 4% improving our book yield by 12 basis points to 458%.

Our book yield has improved by approximately 160 basis points since the start of 2022 as a reminder, every 100 basis points of pre tax yield on the entire investment portfolio equates to approximately 260 basis points of Roe.

Our capital position remains extremely strong with $2 6 billion of GAAP equity and statutory capital and surplus as of quarter end book value per share is up 5%. This year, a 7% adjusted for dividends.

Operating cash flow through September 30th increased 8% to $522 million compared to the first nine months of 2022.

Our parent company's cash and investment position totaled 486 million on September 30th above above our long term target of 180 million, providing us with ample dry powder.

Net premiums written to surplus increased to 153 times driven by strong premium growth, while our target operating range for premium to surplus continues to be 135% to one five times, we'd be comfortable moving above one five times for a period of time and we have the flexibility to downstream capital to our insurance subsidiaries.

We reduced this ratio of appropriate debt to capital was stable at 16% and we have significant financial flexibility to support our strong growth and execute our strategic initiatives.

We did not repurchase any shares during the quarter and have $84 2 million and remaining capacity under our share repurchase authorization.

<unk> remains at the most attractive opportunities to deploy capital towards organic growth within our insurance operations.

Reflecting our continued profitable growth as an organization our board of directors has declared a quarterly dividend of <unk> 35 per share an increase of 17%.

Shifting to our outlook for 2023, our full year expectations have improved modestly compared to last quarter and the start of the year.

We continue to expect consistent underwriting margins with an all in GAAP combined ratio expectation for the year of 96, 5%.

We are increasing our after tax net investment income by $10 billion to $310 million.

Our GAAP combined ratio guidance of 96, 5% now includes six five points of catastrophe losses.

A half point from our previous guidance of six points and up two points from the start of the year.

As usual assumes no additional prior accident year casualty reserve development.

Our after tax net investment income guidance of $310 million includes an assumption of $20 million and after tax gains from alternative investments.

Though down from $30 million in after tax gains assumed at last quarter's guidance.

The expected income from our fixed income portfolio more than offset the decline in our assumption for alternatives other.

Other elements of our guidance remains unchanged with an overall effective tax rate of approximately 21% with an effective tax rate of 20% for net investment income and 21% for all other items and weighted average diluted shares of $61 million, which does not reflect any share repurchases, we may make under our authorization.

Lastly, this is a caused by last earnings call with selective.

Okay.

Selected CFO for the last seven years has been an honor and a privilege.

Very proud of what we have accomplished notably the significant value. We have created for our shareholders I want to thank John for his extraordinary leadership and our excellent working relationship relationship leading selective is not easy.

I want to thank our board of directors talented employees and tremendous distribution partners, who might admire greatly thanks.

Thanks also to all of you who cover selective I've enjoyed interacting with you and look forward to being able to do the same in the not too distant future.

Over the long term I believe selective will continue delivering profitable growth and I look forward to its continued success.

Now I'll turn the call back to John.

Thank you Mark.

Before we open the line for questions I would like to briefly comment on our CFO transition.

First on behalf of the board of directors and our entire team I want to thank mark for his many contributions to selective over the last seven years.

He has been a trusted partner and we're pleased he could assist us in a seamless transition closing the quarter and participating in today's call, we wish mark well.

Tony <unk> is currently our Chief accounting officer, and we are fortunate to have someone of his caliber step into the interim CFO role, while we search for a permanent replacement.

Importantly, as we stated in our announcement, we do not expect the transition will impact our performance our strategy.

Im confident that Tony and our strong finance team are equipped to support the continued execution of our financial priorities.

Overall selective is well positioned with excellent prospects going forward we.

We have the capital strength to support attractive growth opportunities and the tools and organizational capabilities to effectively manage our business through various market cycles.

With that operator, please open the call for questions.

Thank you everyone. We will now begin the question and answer session. If you would like to ask a question. Please press star followed by the number one please on mute your phone and recording a purely when prompted her name is required to introduce your question to cancel your request you May Press Star then the number two.

First question comes from the line of Michael <unk> from BMO capital.

Line is now open.

Hey, Good morning. This is Jack on for Mike I.

I know you provided some data points earlier on this topic, but wanted to ask about the potential relationship between falling year over year reserve release levels.

They've had an impact on selected prospective view of loss cost inflation, particularly for longer tail casualty lines.

Some insurers have cited that higher interest to be correlated with the potential for higher levels of inflation. I was just wondering if you have any thoughts on that topic.

This is mark why don't I start I think that we had a little bit of a tough time Jack hearing your question, but I think it related to reserve releases over time, and how that impacts loss cost going forward, if I'm not mistaken.

But just just for the record from all perspective.

Every quarter as I've mentioned in my prepared comments selective does a very detailed ground up reserve review of all of our major lines of business and each quarter, we respond to the emergence from a frequency and severity perspective by line of business over the last 17 years.

Plus.

Nine months of 2023, we've had favorable claims emergence across our portfolio and across our book of business in.

And each quarter each line responds definitely and we've had periods of time, where general liability has been favorable and workers' compensation that has been unfavorable most recently the trend has been towards favorable.

Frequency benefits, particularly in workers compensation.

That's driven some.

Favorable reserve development, but we've also had some offsets including from the commercial auto and most recently <unk> has been a little bit of a drag from a prior year development perspective.

This quarter, we saw the consistent trend with workers compensation generating favorable claims emergence and we had 7 million of favorable reserve development workers comp, but that was largely offset by $4 million of unfavorable development in commercial auto and $3 million of commercial.

First of all auto prior year adverse development. So net that was zero, but overall again, we book our best estimate now quarter in quarter out we don't think that the trend.

Slightly diminishing.

I look back in terms of impact on the combined ratio from reserve development has any.

The meaningful impact on our forward look of trend at this point, but there are some John mentioned some observations around general liability and so the things that we're keeping a close eye on and the other point. This is John and I would just sort of reinforces and we've always been quite transparent around this as we've been building in an inch.

<unk> and our expected loss trend over the last couple of accident years, and as we pointed out we view that as largely driven by severity and frequencies were expected to remain fairly stable. So those trends emerge over time and as we put out our 2024 guidance, we'll give you our updated view of how we see.

Those trends emerging into the future.

That's helpful. Thank you and then my second question is on the construction related portfolio and which we appreciate is a strong industry niche for selective.

So I guess given that interest rates have been meaningful meaningfully higher for a while now the media it's been all over covering some macro data points showing that new construction starts are at decade lows.

Thinking back to the post financial crisis era. When construction spending also declined meaningfully are there any potential implications that you're thinking about the cycle.

So I think we always stay on top of estimating making sure we have our exposure base right in estimating our accrual for audit premium I would say exposure across the commercial lines portfolio, including our construction classes continues to be strong, but thats something we evaluate on a <unk>.

Regular basis to make sure. We stay ahead of that and get exposures right. On every policy. We renew every policy, we write new and then a disciplined process around auditing to make sure. Those exposures are right looking back once the policy expires. The other thing I would I would point to is are we talking about the construction classes not.

One.

Model and class of business, we write a lot of different artisan contractor classes.

And housing starts are not necessarily the best indicator of growth in those classes because I think the other thing that's happened is with the significant turnover in housing over the last several years you still have a lot of pent up demand for home remodeling that I think it will continue to remain robust looking forward. So I think we will see.

What happens in the economy that certainly has the potential impact of exposure is not just in construction, but in all sorts of classes of business, but that's something we have always been diligent about making sure we get the exposure base right and then ordering it after policy exploration to capture any increases or decreases.

Thank you.

Thank you. Our next question comes from the line of Chris Carter from Bank of America. Your line is now open.

Hi, everyone.

Good morning.

Looking at the new business trends in personal lines. There has been some really strong growth there for the past few quarters.

I was hoping you all could maybe help us think about that is broken down into policy count growth.

Versus just growth from pricing and if we should expect any sort of deceleration there as the book continues to kind of reprice.

It works towards reaching target margins.

Yes, I would say.

You would expect to certainly see some deceleration in growth I think is likely driven by a couple of factors and we will start to that we're starting to see this already on a policy count basis and expect to see this on a go forward basis, which is we have restricted the quoting of certain types of new business.

And comparative rating platforms that agents use specifically for accounts that aren't in our mass affluent target market. So that certainly has had an impact on new I think with regard to the renewal portfolio and how that impacts growth you heard us in the prepared comments talk about the increase in rates that were start.

To see on a written basis, but more importantly, the.

A significant ramp up in the rates as we move into 'twenty, four and that expectation of a written rate over the course of the year.

In the low 20% range and I think that will also have an impact on growth. So certainly new business pricing continues to be a little bit higher or new business pricing in the quarter was about a little over 11% because we're getting the immediate impact other filings that are being approved.

So that's a driver but policy count is still up on new business.

Thank you and sticking with personal lines.

Hoping maybe you could help us think through where the tar.

Target combined ratio for this book is and if that's changed versus.

Where it was prior to the mass affluent transition and just kind of if we should think about the <unk>.

95% goal for the entire organization kind of applying to each segment or the degree to which it varies.

Yes.

Great question. So I would think about the 95 that we have overall as applying to all three of our business segments, including personal lines.

Now again in today's interest rate environment at that 95 will generate an Roe.

In excess of our 12% long term target, but we think it's important for the underwriting organization to remain focused on that on a consistent basis. So that would apply it hasnt changed with regards to how we view mass affluent obviously, we think about casualty lines and the personal lines segment, we think about personal auto different than home.

In terms of that target, but when you roll them together 95, all in is the way to think about it on a target basis.

Thank you.

Thank you once again to ask a question. Please press Star then the number one record denim tailwind.

To cancel your request please press star two.

And our next question comes from the line of Andrew <unk> from Piper Sandler Your line is now open.

Hey, guys. Thanks for the call.

Good morning.

I'm just wondering if you can update us on your expectations for alternative investments over the long term.

It's already been a little bit all over the place in recent quarters.

<unk> lowered guidance for the year I'm, just trying to better understand how to think about them prospectively.

Yes. This is Karen let me kind of walk you through that so as you know alternatives.

It's an asset class that has generated very very strong returns for us.

Within alternatives Thats a relatively.

Broad description, we have a pretty healthy allocation to private equity we have an allocation to private credit and we have an allocation to what we call real assets that includes real estate and infrastructure and it's about call it 70%.

22% and 8% split between those three categories. Each of those asset classes are going to generate different returns over the longer over the longer run.

Overall.

We think about it on a prospective basis would put probably about call. It about a 10% return expectation out there for those asset classes.

This year, we've had a dial back expectations, we had a $30 million after tax.

<unk> expectation for alternatives in 2023, we had a good start to the year, but as you saw the S&P 500 was down about 4% in Q3. So when you go through the math on the year to date old income versus guidance of 20, we're basically saying zero returned in the fourth quarter and Thats sort of our best estimate at this point if you would.

Take a look back at our portfolio over a multiyear period and sort of call. It ex legacy we had a portfolio that came out of the financial crisis, but since the new investment team came in and started to ramp the alternative portfolio back up in 2016, it's been up just under a 20% IRR. So it's done.

<unk> very very healthy returns and you might recall in particular two.

<unk> thousand 261, having very.

Very very strong returns with a gain in seem to remember about about $90 million on $93 million. After tax so it tends to bounce around a little bit, but I think longer term I would go with about a 10% return expectation for.

For the portfolio.

Great. Thank you so much.

Thank you. Our next question comes from the line of Deane, Chris Taylor from <unk>. Your line is now open.

Hi, My first question was about the E&S client that was I was a bit surprised to see the deceleration of pricing increases.

Within the non admitted line.

Any additional color you could provide there or are you guys still seeing strong submission flow until those lines or have you seen sort of a change in the market dynamics recently, and if you could sort of like bifurcate that between property and casualty that would be great as well.

Yes sure so.

Yes.

I would hesitate to use that term deceleration, it's six six in the quarter and 71 on a year to year to date basis. So that's strong and that is extremely strong in the context of an all in combined ratio of 89, 7% on a year to date basis, and an underlying of 82 and a half.

So despite those higher than expected cats in that segment, we're still producing a 90% combined ratio so with regard to the pricing overall I would consider that more stable then I would see deceleration.

And from our casualty and the property perspective casualty was six two in the quarter.

The property was 73 in the quarter. So we see strong growth I think the business were writing and Thats driving that growth as business. We have a long track record with we haven't really stretched from an underwriting appetite perspective, we continue to see ample opportunities and continue to see a favorable market dynamic I will say just generally speaking and I.

This is around the edges as a lot of players in that market have started to really move away from property, you've seen a little bit more competition for casualty driven business, but I would still call that around the edges. As you can see from our growth overall and the.

Pricing, we're getting on both property and casualty, we think the market dynamics, there remain pretty constructive.

Awesome. Thank you for that color my follow up question with back to the personal lines mass affluent market.

We've noticed recently a number of competitors have sort of pulled back from certain markets.

In certain regions.

Guys have plans to sort of expand into certain regions to sort of capitalize on that and then is there any chance you could quantify what percent of your total personal lines portfolio from the mass affluent market.

Yes, so with regards to the distribution at this point, we're a little north of 50% five zero, 50% on <unk>.

Mass affluent relative to non target at this point, but obviously youre seeing and certainly in the last couple of months in particular, a much higher proportion of that from a new business perspective, being tilted more towards the mass affluent space than the non target space. We don't have any near term plans to it.

Expand our focus right now is on making sure that we could achieve our profit targets for that segment of business and the 13th state footprint that we 13 15 state footprint. My apologies that we currently have there are some states that we have on the board for potential expansion down the road, but it's really.

Generally speaking not going to be the the states that you see companies really pulling back from if you look at our portfolio, we're not a heavy coastal writer and don't plan on being a heavy coastal writer that's not how we're building. This book of business. So we see ample opportunities in our current footprint and as we approach our.

Our margin targets, which we would expect to do over the next couple of years based on pricing and underwriting actions, we're taking and we'll contemplate further expansion.

Awesome, Thanks for that and if I could sneak one more in can you quantify the cat losses by line for the commercial lines of business.

Yes, certainly so this excuse me this is a market for the quarter.

And let me just walk you through the catalog you pointed just standard commercial lines.

Yes. Please.

Okay.

For Q3, commercial auto 2 billion commercial property $33 million and bump $4 4 billion to $36 seven or.

Four seven points on the combined.

Awesome. Thanks, guys.

Thank you our last question comes from the line of Bob Farnam from Jamie Your line is now open.

Thanks, and good morning.

A couple more questions on that.

Personal lines book, just so the mass affluent market.

As the book.

Gross and that's more of a percentage of the mass affluent.

Are you expecting the same type of combined ratio and if so are you expecting a difference in terms of the loss ratio versus expense ratio components in other words ECS fluid markets at a higher expense ratio, but a lower loss ratio Im just trying to figure out.

Kind of how this is going to flow through going forward.

Yeah sure. So I would go back to the <unk> question earlier, I think our target will be that 95, and that's how we think about it on a risk adjusted basis for both home and auto and that's what we're striving for I do think the one longer term benefit in this space as you do.

To see over time higher retention rates.

Based on this class of business and generally speaking in the personal lines market aging of the book of business.

Create enhanced.

Enhanced profit margins and I think that's where you might see some additional benefit but again when you look at this on a risk adjusted basis is 95 being the targets and that applies to how we think about this this particular segment of the market that we're moving into.

Alright.

Are you finding these types of customers demand more services from selective or is that just something thats.

There's not really a factor at this point.

So I think from a product perspective, including optional coverages, we've dialed up those offerings and we are seeing a higher adoption rate.

That higher adoption rate of those additional coverages is what also drives retention is higher because they're not matched by by everybody in the marketplace.

And we are starting to see that from a claims perspective on the service side. We've always had a service philosophy around claims that supplied to our commercial lines business in our personal lines business and I think we're well suited to meet the expectations of this customer base from a claim servicing perspective.

Okay.

And one one question.

Specifically in the personal auto combined ratio of a 127.

I heard mark it sounds like maybe five points of that was adverse reserve development. So you're still looking at a 122 I don't know how much of that was related to cats, but.

It's still going to get a feel for it is a long way to go back down to that 95.

As you know.

Yes.

In terms of how long do you think it's going to get down to 95, it's probably more of what I'm getting to but it just seems like it's still a long way to go.

While Theres no question Theres, a theres a gap that were looking to overcome and I think the pricing that we put out there.

And our expectations for pricing next year at that call. It low 20% kind of range will have a big impact. The open question is where the loss trends ultimately settle out and we have an expectation for loss trends, but we've also highlighted the fact that loss trends remain somewhat uncertain.

When do you think about some of the drivers that are that are impacting everybody in the industry, but from Europe from the what you piece together from Mark's commentary the call at accident year, when you strip out the impact of the prior year development. The starting point is around a 116 116.

And a half.

And that 95% target is how do you want to think about that gap. So that's the gap that were looking to close we have clarity around our rate plan, we have an assumption relative to forward loss trends that we expect and how those two pieces come through on an earned basis over the next several quarters will ultimately determine the timeframe to get to that 95.

Yeah.

Alright, okay.

Thanks for the answers.

Thank you. Thank you.

Thank you at this time speakers, we don't have any question in queue. You May proceed.

Well. Thank you all for your participation and look forward to talking to you soon thank you.

Thank you and that concludes today's conference. Thank you all for participating you may now disconnect.

[music].

Good day, everyone and welcome to selective insurance group's third quarter 2023 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, Brad Olsen.

Thanks, and good morning.

Passengers corner website select dot com and a replay will be.

Available until December.

We used three measures to discuss our results and business operations.

First we use GAAP financial measures reported in our annual quarterly and conquer ports filed with the SEC.

We use non-GAAP operating measures, which we believe makes it easier for investors to evaluate our insurance business.

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

Adjusted book value per common share differs from book value for common share by excluding total after tax unrealized gains and losses on investments included in accumulated other comprehensive loss or income.

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

The investors page of our website.

Third we make statements and projections about our future performance.

These are 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.

We discuss these risks and uncertainties in detail in our annual quarterly and current reports filed with the SEC.

We undertake no obligation to update or revise any forward looking statements.

Now I will turn the call over to John <unk>, Our chairman of the Board President and Chief Executive Officer.

Mark Wilcox, our executive Vice President Chief Financial Officer will follow John.

Good morning, and thank you for joining us.

We delivered strong earnings in the third quarter with excellent top line growth.

Our annualized non-GAAP operating ROE was 15%, bringing our year to date results of 13, 2%.

This puts us ahead of our 12% operating ROE target as we strive to consistently meet or exceed it.

We continue to see a meaningful increase in ROA contribution from investment income and solid underwriting performance.

With a quarter ago, we are well positioned to deliver our 10th consecutive year of double digit operating Roe.

Since 2014, our average operating ROE is 12% fewer.

A few in our industry can match this track record.

As we proved across price pricing cycles over the past dozen years, we have consistently achieved renewal pure rate equal to or exceeding expected loss trends.

We are focused on ensuring this continues going forward as we manage our new and renewal portfolio.

The ability to underwrite at a granular level enabled by sophisticated tools as a key reason for our strong and stable underwriting performance over time.

These factors have put pressure on loss cost necessitating continued industry focus on adequate pricing.

We achieved standard commercial lines renewal pure price increases of seven 1% in the quarter and six 9% year to date versus our expected loss trend of six 5% coming into 2023.

Our 2023 accident year loss estimates are generally holding up as expected, but pockets of pressure exists, particularly in personal and commercial auto liability.

Mark will discuss some of the actions we have taken.

But in general liability, we've been embedding higher severity picks in our initial estimates in recent years and they have come to fruition.

Lower frequency has largely offset the higher severities in the most recent accident years.

Favorable frequency trend moderates and severity as emerge higher than expected, we could see additional pressure on this line.

We believe this is an industry wide dynamic and therefore expect pricing to reflect these elevated trends.

Despite the higher interest rates that are providing a meaningful tailwind to investment income we are maintaining our long term target combined ratio of 95% midstream.

This reflects elevated uncertainty about emerging casualty loss trends inflationary impacts in property and increased weather event frequency.

As a result, we can avoid merger kony and actions that some competitors may be to take to address profitability challenges this dropping our customers and agents.

The remaining 10% of our business standard personal lines is clearly short of target profitability, which we are addressing through aggressive rate increases.

These final rate increases began to take effect on a written basis during the first quarter of 2023.

We expect our overall written renewal rate will be approximately 9% in the fourth quarter and in the range of 20% to 25% in 2024 subject to regulatory approvals as.

As we file these rate changes we are also refining our pricing for both cat and non cat perils, including severe convective storm.

At the same time, we are seeking to further improve homeowners performance through terms and conditions.

We are introducing actual cash value rather than replacement costs on older roofs and.

Finally, we are taking further actions to accelerate the migration of the portfolio to our target market, which presents greater potential for long term profitability.

Overall topline growth continues to be excellent.

Our distribution partners appreciate our franchise value open communication and consistent approach to managing rate and retention.

And total net premiums increased 17% in the quarter to $1 1 billion and we are on our way to exceeding $4 billion in annual premiums for the first time in our nearly 100 year history.

Across all our segments renewal pure price was 7% for the quarter and new business grew 26%.

<unk> New states since 2017 added approximately two points to premium growth in the quarter.

And our flagship standard commercial lines segment net premiums written grew 15% in the quarter with 13% growth in new business.

Notably the commercial lines marketplace continues to be constructive.

As evidenced by our renewal pure price of seven 1% in the quarter and strong retention of 86%.

Manageable policy count growth of two 5% also contributed to the top line.

During the quarter property renewal pure rate was up 12, 3% with exposure, increasing four 7% and total renewal renewal premium up 17, 6%.

In commercial auto renewal pure rate was nine 6% with increased exposure of four 3%, resulting in a 14, 3% total renewal premium increase.

Geographic expansion continues to provide us runway to expand our business and diversify our portfolio.

Our deliberate approach to adding new states has manifested in a repeatable process and generated strong results.

We are adding west, Virginia, and Maine to our commercial lines footprint in the coming months and are excited to announce we expect to launch Washington, Oregon, and Nevada in late 2024.

Ultimately, we plan to raise standard commercial lines and most of the contiguous United States.

Excess and surplus lines continues to perform very well with 25% premium growth in the quarter and an excellent all in combined ratio of $83 nine or <unk> 84 on an underlying basis.

For the first nine months premium growth was 21% with a combined ratio of $89 seven and underlying combined ratio of $82 five.

I'll now turn the call over to Mark to review, our financial performance in more detail.

Thank you John and good morning, we reported $1 42 per fully diluted EPS in the third quarter up 115% from a year ago at $1 51 of non-GAAP operating EPS up 53% year to date fully diluted EPS was $3 83 up 77% compared to the prior year period.

GAAP operating EPS was $3 nine.

Five up 11%.

This quarter significant growth in after tax net investment income and stable underwriting margins drove outperformance a consolidated combined ratio for the quarter was 96, 8%.

After tax net investment income up 56%, we generated a healthy 15 percentage points of operating ROE up four to five points from a year ago. When we reported the same 96, 8% combined ratio.

Despite our strong operating ROE driven by higher net investment income our full year expected combined ratio of 96, 5% is above 95% longer term target. Therefore, we will remain disciplined as we look to achieve our longer term underwriting margins.

Net losses of $8 million as.

As a result of the higher than expected cat losses in the quarter. We have increased our full year catastrophe loss ratio guidance from six points last quarter to six five points we.

We did not report any net favorable prior year casualty reserve development in the quarter.

While our workers' compensation line continues to show favorable claims emergence with $7 million of favorable prior year Casualty reserve development.

This was offset by unfavorable development of $4 million in commercial auto and $3 million in personal auto.

As John described we are closely monitoring casualty lines and continuing our practice of full reserve reviews, each quarter for all major lines of business to stay abreast of emerging trends.

As it relates to the current accident year, we took action in our personal auto line in the quarter, increasing loss costs by $4 9 million or five two points on the personal lines combined ratio.

We also added $4 million in commercial auto increase in the third quarter combined ratio with half a point for standard commercial lines. We expect these higher loss picks in these lines to continue this year.

The underlying combined ratio was a very profitable at 90% to 92% for the quarter four to five points lower than a year ago.

Non cat property losses of $17 six points with two points better than the $19 six points in the third quarter of 2022.

A bit better than expected.

So a lower expense ratio contributed one seven points of improvement.

To drive operating efficiencies and manage our expense ratio, while ensuring we continue to make the significant investments necessary to support our strategic objectives.

E&S segment also had an excellent quarter with 83, 9% combined ratio and underlying combined ratio of 84% and net premiums written growth of 25%.

As John discussed we are addressing this with the aggressive rate and underwriting actions.

The bright spot with the expense ratio, which came in lower than the run rate due to our flood business.

Since the start of the rise in benchmark interest rates 21 months ago, we've put $4 $8 billion to work in fixed income and our results are benefiting from these actions.

Alternative investments reported on a one quarter lag generated $5 $1 million of after tax income up $9 5 million from a year ago is $4 $4 million loss.

During the quarter the average credit rating of our fixed income and short term investments declined modulate to a plus from double a minus the decrease in the average credit quality was driven by Fitch downgrading, the United States long term issuer default rating to double a plus for the AAA in August in the future, we expect our credit quality to remain in.

The eight plus a double a minus range importantly, our investment strategy and underlying credit quality is unchanged.

We continue to find attractive opportunities to deploy new money into high quality securities, while increasing the portfolio's book yield.

In the quarter, we invested $443 million of new money at an average pretax yield of six 4% improving our book yield by 12 basis points to 458%.

Our book yield has improved by approximately 160 basis points since the start of 2022.

As a reminder, every 100 basis points of pre tax yield on the entire investment portfolio equates to approximately 260 basis points of Roe.

Compared to the first nine months of 2022.

Our parent company's cash and investment position totaled $486 million on September 30th above above our long term target of $180 million, providing us with ample dry powder.

Net premiums written to surplus increased to 153 times driven by strong premium growth, while our target operating range for premium to surplus continues to be 135 million to 155 times, we'd be comfortable moving above 155 times for a period of time and we have the flexibility to downstream capital to our insurance subsidiaries.

To reduce this ratio of appropriate debt to capital was stable at 16% and we have significant financial flexibility to support our strong growth and execute our strategic initiatives.

We did not repurchase any shares during the quarter and have $84 2 million and remaining capacity under our share repurchase authorization.

<unk> remains at the most attractive opportunities to deploy capital towards organic growth within our insurance operations.

Reflecting our continued profitable growth as an organization our board of directors declared a quarterly dividend of <unk> 35 per share an increase of 17%.

Shifting to our outlook for 2023, our full year expectations have improved modestly compared to last quarter and the start of the year.

We continue to expect consistent underwriting margins with an all in GAAP combined ratio expectation for the year of 96, 5%.

We are increasing our after tax net investment income by $10 billion to $310 million.

Our GAAP combined ratio guidance of 96, 5% now includes six five points of catastrophe losses.

A half point from our previous guidance of six points and up two points from the start of the year.

As usual assumes no additional prior accident year casualty reserve development.

Our after tax net investment income guidance of $310 million includes an assumption of $20 million and after tax gains from alternative investments.

Down from $30 million in after tax gains assumed at last quarter's guidance.

The expected income from our fixed income portfolio more than offset the decline in our assumption for alternatives.

Other elements of our guidance remained unchanged with an overall effective tax rate of approximately 21% with an effective tax rate of 20% for net investment income and 21% for all other items and weighted average diluted shares of $61 million, which does not reflect any share repurchases, we may make under our authorization.

Lastly, this is of course my last earnings call with selective.

Serving as selected CFO for the last seven years has been an honor and a privilege I'm very proud of what we have accomplished notably the significant value. We have created for our shareholders I want to thank John for his extraordinary leadership and our excellent working relationship relationship leading selective is not easy.

I also want to thank our board of directors talented employees and tremendous distribution partners, who my admire greatly.

Thanks also to all of you who cover selective I've enjoyed interacting with you and look forward to being able to do the same in the not too distant future.

Over the long term I believe selective will continue delivering profitable growth and I look forward to its continued success now I'll turn the call back to John Thank.

Thank you Mark before we open the line for questions I would like to briefly comment on our CFO transition.

First on behalf of the board of directors and our entire team I want to thank mark for his many contributions to selective over the last seven years.

Mark has been a trusted partner and we're pleased he could assist us in a seamless transition closing the quarter and participating in today's call, we wish mark well.

Tony <unk> is currently our Chief accounting officer, and we are fortunate to have someone of his caliber step into the interim CFO role, while we search for a permanent replacement.

Accordingly, as we stated in our announcement, we do not expect the transition will impact our performance our strategy I.

I am confident that Tony and our strong finance team are equipped to support the continued execution of our financial priorities.

Overall selective is well positioned with excellent prospects going forward we.

We have the capital strength to support attractive growth opportunities and the tools and organizational capabilities to effectively manage our business through various market cycles.

With that operator, please open the call for questions.

Thank you.

We will now begin the question and answer session, if you'd like to ask a question. Please press star followed by the number one please on mute your phone and record your name clearly when prompted her name is required to introduce your question to cancel your request you May Press Star then the number to you. Our first question comes from the line of Michael for apps from BN.

El Cabo.

<unk> is now open.

Hey, Good morning, this is Jack on for Mike.

I know you provided some data points earlier on this topic, but wanted to ask about the potential relationship between falling year over year reserve release levels.

They've had an impact on selected prospective view of loss cost inflation, particularly for longer tail casualty lines.

I know some insurers have cited that higher interest rates to be correlated with the potential for higher levels of inflation. I was just wondering if you have any thoughts on that topic.

This is mark why don't I start I think we had a little bit of a tough time Jack hearing your question, but I think it related to reserve releases over time, and how that impacts loss cost going forward, if I'm not mistaken.

But just just for the record from our perspective.

Every quarter as I've mentioned in my prepared comments selective does it very detailed ground up reserve review of all of our major lines of business and each quarter, we respond to the emergence from a frequency and severity perspective by line of business over the last 17 years plus.

Plus <unk>.

Nine months of 2023, we've had favorable claims emergence across our portfolio and across our book of business and each quarter. Each line responds definitely and we've had periods of time, where general liability has been favorable and workers' compensation that has been unfavorable most recently the trend has been towards favorable.

Frequency benefits, particularly in workers compensation, that's driven some.

Considerable favorable reserve development, but we've also had some offsets including from the commercial auto and most recently <unk> has been a little bit of a drag from a prior year development perspective.

First of all auto prior year adverse development. So net that was zero, but overall again, we book our best estimate now quarter in quarter out we don't think that the trend.

Slightly diminishing.

I look back in terms of impact on the combined ratio from reserve development has any meaningful impact on our forward look of trend at this point, but there are some John mentioned some observations around general liability and some things that we're keeping a close eye on it.

The other point this is Jonathan I would just sort of reinforces and we've always been quite transparent around this as we've been building in an increase in our expected loss trend over the last couple of accident years and as we pointed out we view that as largely driven by severity and frequencies were expected to remain.

Fairly stable so those trends emerge over time and as we put out our 2024 guidance, we'll give you our updated view of how we see those trends emerging into the future.

That's helpful. Thank you and then my second question is on the construction related portfolio and which we appreciate is a strong industry niche for selective.

So I guess given that interest rates have been meaningful meaningfully higher for a while now the media has been all over covering some macro data points showing that new construction starts are at decade lows.

Thinking back to the post financial crisis era. When construction spending also declined meaningfully are there any potential implications that you're thinking about the cycle.

So I think we always stay on top of estimating making sure we have our exposure base right and estimating our accrual for audit premium I would say exposure across the commercial lines portfolio, including our construction classes continues to be strong, but thats something we evaluate on a <unk>.

Regular basis to make sure. We stay ahead of that and get exposures right. On every policy, we renew and every policy, we write new and then a disciplined process around auditing to make sure. Those exposures are right looking back once the policy expires. The other thing I would I would point to is are we talking about the construction classes it's not.

One.

Model with a class of business, we write a lot of different artisan contractor classes.

What happens in the economy that certainly has the potential impact of exposure is not just in construction, but in all sorts of classes busy.

Business, but that's something we have always been diligent about making sure we get the exposure base right and then ordering it after policy exploration to capture any increases or decreases.

Thank you.

Thank you. Our next question comes from the line of Chris Carter from Bank of America. Your line is now open.

Hi, everyone.

Good morning, Greg.

Looking at the new business trends in personal lines. There has been some really strong growth there for the past few quarters.

Hoping you all could maybe help us think about that is broken down into policy count growth.

Versus just growth from pricing and if we should expect any sort of deceleration there is.

<unk> continues to kind of reprice.

Works towards reaching target margins.

Yes, I would say.

You would expect to certainly see some deceleration in growth I think is likely driven by a couple of factors and we will start that we're starting to see this already on a policy count basis and expect to see this on a go forward basis, which as we have restricted the quoting of certain types of new business.

Going to see on a written basis, but more importantly, the.

The significant ramp up in the rates as we move into 'twenty, four and that expectation of a written rate over the course of the year.

So that's a driver but policy count is still up on new business.

Thank you and sticking with personal lines.

Hoping maybe you could help us think through where the.

Combined ratio for this book is and if that's changed versus.

Where it was prior to the mass affluent transition and just kind of if we should think about the.

95% goal for the entire organization kind of applying to each segment or the degree to which it Barry. Thank you.

Great question. So I would think about the 95 that we have overall as applying to all three of our business segments, including personal lines.

Now again in today's interest rate environment at that 95 will generate an Roe.

Well in excess of our 12% long term target, but we think it's important for the underwriting organization to remain focused on that on a consistent basis. So that would apply it hasnt changed with regards to how we view mass affluent obviously, we think about casualty lines and the personal lines segment, we think about personal auto different than home.

In terms of that target, but when you roll them together 95, all in is the way to think about it on a target basis.

Thank you.

Thank you once again to ask a question. Please press Star then the number one record denim tailwind to.

To cancel your request please press star two.

And our next question comes from the line of Andrew <unk> from Piper Sandler Your line is now open.

Hey, guys. Thanks for the call.

Good morning.

I'm just wondering if you can update us on your expectations for alternative investments over the long term.

It's already been a little bit all over the place in recent quarters.

<unk> lowered guidance for the year I'm, just trying to better understand how to think about them prospectively.

Yes. This is mark here, let me kind of walk you through that so as you know alternatives.

It's an asset class that has generated very very strong returns for us.

Within alternatives Thats a relatively.

22% and 8% split between those three categories. Each of those asset classes are going to generate different returns over the longer over the longer run.

Overall.

We think about it on a prospective basis would put probably about call. It about a 10% return expectation out there for those asset classes.

This year, we've had a dial back expectations, we had a $30 million after tax.

Zero return in the fourth quarter, and Thats sort of our best estimate at this point. If you were to take a look back at our portfolio over a multiyear period and sort of call. It ex legacy we had a portfolio that came out of the financial crisis, but since the new investment team came in and started to ramp the alternative portfolio back up in 2016.

It's been up just under a 20% IRR. So it has generated very very healthy returns and you might recall in particular two.

<unk> thousand 261, having very.

Very very strong returns with a gain in seem to remember about about 90 million $93 million. After tax so it tends to bounce around a little bit, but I think longer term I would go with about a 10% return expectation for.

For the portfolio.

Great. Thank you so much.

Thank you. Our next question comes from the line of Deane, Chris that Tallow from K BW. Your line is now open.

Hi, My first question was about the E&S client that was I was a bit surprised to see the deceleration of pricing increases.

Within the non admitted line is there any additional color you could provide there or are you guys still seeing strong submission flow until those lines or have you seen sort of a change in the market dynamics recently, and if you could sort of like bifurcate that between property and casualty that would be great as well.

Yes sure so.

Yes.

I hesitate to use that term deceleration. It's it was six six in the quarter and 71 on a year to year to date basis, So thats strong and Thats extremely strong in the context of an all in combined ratio of 89, 7% on a year to date basis, and an underlying of 82 and a half.

So despite those higher than expected cats in that segment, we're still producing a 90% combined ratio. So with regard to the pricing overall I would consider that more stable than I would a deceleration.

And from our casualty and the property perspective casualty was six two in the quarter.

Think this is around the edges as a lot of players in that market have started to really move away from property, you've seen a little bit more competition for casualty driven business, but I would still call that around the edges. As you can see from our growth overall and the pricing we're getting on <unk>.

Property and casualty, we think the market dynamics, there remain pretty constructive.

Awesome. Thank you for that color my follow up question was back to the personal lines mass affluent market. We've noticed recently a number of competitors have sort of pulled back from certain markets.

And regions do you guys have plans to sort of expand into certain regions to sort of capitalize on that and is there any chance you could quantify what percent of your total personnel.

Portfolio from that mass affluent market.

Yes, so with regard to the distribution at this point, we're a little north of 50% five zero, 50% on <unk>.

Mass affluent relative to non targeted at this point, but obviously youre seeing and certainly in the last couple of months in particular, a much higher proportion of that from a new business perspective, being tilted more towards the mass affluent space than the non target space. We don't have any near term plans to it.

Generally speaking not going to be the the states that you see companies really pulling back from if you look at our portfolio, we're not a heavy coastal writer and don't plan on being a heavy coastal writer that's not how we are building. This book of business. So we see ample opportunities in our current footprint and as we approach our.

Our margin targets, which we would expect to do over the next couple of years based on pricing and underwriting actions, we're taking and we'll contemplate further expansion.

Awesome, Thanks for that and if I could sneak one more in can you quantify the cat losses by line for commercial lines of business.

Yes, certainly so.

This is mark here for the quarter.

And let me just will keep through the catalog you pointed just standard commercial lines.

Yes. Please.

Okay.

So for Q3 commercial auto 2 billion commercial property $33 million and bump $4 $4 billion to $36 seven.

Four seven points on the combined.

Awesome. Thanks, guys.

Thank you our last question comes from the line of Bob Farnam from Jamie Your line is now open.

Thanks, and good morning.

A couple of more questions.

Personal lines book, just so the mass affluent market.

As the book.

Grows and Thats more of a percentage of the mass affluent.

Are you expecting the same type of combined ratio and if so are you expecting a difference in terms of the loss ratio versus expense ratio components in other words ECF fluid market.

Higher expense ratio, but a lower loss ratio Im just trying to figure out.

Kind of how this is going to flow through going forward.

Yes, sure. So I would go back to the to <unk> question earlier, I think our target will be that 95, and that's how we think about it on a risk adjusted basis for both home and auto and that's what we're striving for I do think the one longer term benefit in this space as you do <unk>.

Spect to see over time higher retention rates.

Based on this class of business and generally speaking in the personal lines market.

<unk> of our book of business.

Creates.

Enhanced profit margins and I think that's where you might see some additional benefit but again, we look at this on a risk adjusted basis is 95 being the target and that applies to how we think about this particular segment of the market that we're moving into.

Alright.

Are you finding these types of customers demand more services from selective or is that just something that's.

Not really a factor at this point.

So I think from a product perspective, including optional coverages, we've dialed up those offerings and we are seeing a higher adoption rate that that higher adoption rate of those additional coverages is what also drives retention is higher because they're not matched by by everybody in the marketplace.

And we are starting to see that from a claims perspective.

On the service side, we've always had a service philosophy around claims that supplied to our commercial lines business in our personal lines business and I think we are well suited to meet the expectations of this customer base from a claim servicing perspective.

Okay.

One one question.

Specifically on the personal auto combined ratio of a 127.

Mark right it sounds like maybe five points of that was.

Adverse reserve development, so you're still looking at a 122 I don't know how much of that was related to cats, but.

It's still going to get feel for it is a long way to get back down to that 95.

Yes.

In terms of how long do you think it's going to get down to 95% is probably more what I am getting too, but it just seems like it's still a long way to go.

While Theres no question Theres, a theres a gap that we're looking to overcome and I think the pricing that we put out there and.

And our expectations for pricing next year at that call. It low 20% kind of range. We will have a big impact. The open question is where to loss trends ultimately settle out and we have an expectation for loss trends, but we've also highlighted the fact that loss trends remain somewhat uncertain.

When you think about some of the drivers that are that are impacting everybody in the industry, but from Europe from the what you piece together from Mark's commentary the call at accident year, when you strip out the impact of the prior year development. The starting point is around a 116 116.

And a half.

Yes.

Right Okay.

Thanks for the answers.

Thank you. Thank you.

Thank you at this time speakers, we don't have any question in queue. You May proceed.

Well. Thank you all for your participation and look forward to talking to you soon thank you.

Thank you and that concludes today's conference. Thank you all for participating you may now disconnect.

Q3 2023 Selective Insurance Group Inc Earnings Call

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