Q4 2023 Selective Insurance Group Inc Earnings Call

Good day, everyone and welcome to selective insurance group's fourth 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 Olson.

Good morning, and thank you for joining us for selective <unk> fourth quarter and full year 2023 earnings conference call yesterday, we posted our earnings press release and financial supplement on selected Dot com under the investors section.

A replay of this webcast will be available there shortly after the end of this call.

Today, we will discuss our financial performance market conditions, and our expectations for 2024.

Joining us on the call are Jon <unk>, our chairman of the Board, President and Chief Executive Officer, and Tony Harnett, Our senior Vice President Chief Accounting Officer, and interim Chief Financial Officer.

They will make remarks before we move to a Q&A session.

We're excited to welcome Tony to his first conference call since becoming interim CFO he's been with selective since 1999 and has held several senior finance positions.

Our commentary today includes references to non-GAAP measures, which we believe make it easier for investors to evaluate our insurance business.

non-GAAP measures include operating income operating return on common equity and adjusted book value per common share.

We include GAAP reconciliations to any reference non-GAAP financial measures in the financial supplement on our website.

Also we will make statements and projections about our future performance. These forward looking statements under the private Securities Litigation Reform Act of 1995 are not guarantees of future performance are subject to risks and uncertainties that we disclose in our annual quarterly and current reports filed with the SEC.

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

With those introductory remarks, I'll now turn the call to John.

Thanks, Brad and good morning.

2023 was another excellent year for selective.

We grew net premiums written by 16% produced at 96, 5% combined ratio increased after tax net investment income by 33% to $310 million and produced an operating ROE of 14, 4%.

Catastrophe losses ended the year approximately two points above our initial expectations offset by a better than expected non cat property loss ratio.

<unk> expense ratio and favorable prior year casualty reserve development.

We achieved two significant milestones in 2023.

Exceeding $4 billion in net premiums written for the first time.

Delivering our 10th consecutive year of double digit non-GAAP operating return on equity over.

Over the last decade, we have more than doubled net premiums written and book value per share and almost tripled operating income.

Average operating ROE of 12, 2% over the past decade and exceeded our target.

When we set an ROE target, it's not aspirational, we expect to achieve a consistently.

Our consistent and disciplined profitable growth and approach to enterprise risk management have served our shareholders well.

Over the past 10 years tangible book value per share plus accumulated dividends grew at a compound annual rate of 10%.

We believe this is our industry's best long term indicator of value creation.

Over the same period annualized total shareholder return was 15, 6% exceeding the S&P property and casualty index by two two points per year and the S&P 500 by three six points per year.

We are proud of this track record of strong operating performance growth and excellent shareholder returns back to you on our industry can match.

Although we reported our 18th consecutive year of net favorable prior year Casualty Reserve development, we recorded net adverse casualty development of $10 million in the fourth quarter.

Included in this development was an increase of $55 million in general liability.

We believe this is attributable to the social inflation discussed in previous earnings calls that also is impacting the rest of the industry.

Operator: Good day, everyone. Welcome to Selective Insurance Group's 4th 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. Good morning, and thank you for joining us for Selective's fourth... full year 2023. Yesterday, we posted our earnings press release, and Ron Baskin. The full replay of this webcast will be available there shortly afterward.

Over recent years, we have increased our loss trend assumptions and have seen severities follow suit, partially offset by favorable frequencies.

We believe our prudent planning and reserving approach has served us well.

While favorable frequency trends continue general liability severities have emerged somewhat higher than expected.

The development was mostly on accident years 2015 through 2020 with an average impact of about one loss ratio point to general liability for these years.

The fourth quarter, the adverse general liability development was largely offset by $50 million of favorable workers compensation development.

Brad Wilson: Today we will discuss our financial performance, conditions, and our expectations for the future. Joining us on the call are John Marchionne, our Chairman of the Board, President, and Chief Executive Officer, and Tony Harnett, our Senior Vice President, Chief Accounting Officer, and Interim Chief Financial Officer. They will make remarks before we move to our Q&A. We're excited to welcome Tony to his first conference call since becoming interim CFO.

For accident year, 2023, and we increased casualty loss caused by $14 million, primarily due to elevated frequencies and severities in personal auto and to a lesser extent commercial auto.

Our 2023 accident year loss ratios for general liability remains unchanged.

With these adjustments we remain confident about our overall book the reserves. However, we will continue to monitor these trends and their impact.

Brad Wilson: He's been with Selective since 1999 and has held several senior finance positions. Our commentary today includes references to non-GAAP measures, which we believe make it easier for investors to evaluate our insurance. These non-GAAP measures include operating income, operating return on common equity, and adjusted book value per common share.

Our competitive and crowded market makes it critical that we clearly demonstrate our value proposition to customers distribution partners employees and investors.

Our success is based on a unique combination of competitive advantages.

Brad Wilson: We include GAAP reconciliations to any reference non-GAAP financial measures in the financial supplements on our website. We will also make statements and projections about our future performance. These forward-looking statements under the Private Securities Litigation Reform Act of 1995 are not guarantees of future performance. They are subject to risks and uncertainties that we disclose in our annual, quarterly, and current reports filed with the FBI. We undertake no obligation to update or revise any forward-looking statement.

Taken together these competitive advantages create a winning formula for selective.

They are a unique field model, placing empowered underwriting staff in close proximity to our distribution partners and customers.

Our ability to develop sophisticated risk selection pricing and claims management tools and embed them in the workflows of our frontline employees are.

Our franchise value distribution model.

<unk> by meaningful and close business relationships with a group of top notch independent agents and brokers.

<unk> to delivering a superior omnichannel customer experience enhanced by digital platforms and value added services.

John Marchionne: With those introductory remarks, I'll now turn the call over to Brad. Thanks, Brad, and good morning. 2023 was another excellent year for The Grinette Premium was written by 16%, produced a 96.5% combined ratio, increased after-tax net investment income by 33% to $310 million, and produced an operating ROE of 14.4%. The catastrophe losses ended the year approximately two points above our initial expectations, offset by a better than expected non-capital property loss ratio. We achieved two significant milestones in, exceeding $4 billion in net premiums written for the first time, and in delivering our 10th consecutive year of double-digit, non-GAAP operating return on, Over the last decade, we've more than doubled net premiums, book value per share, and almost tripled operating average operating ROE of 12.2% over the past decade exceeded our target. When we set an ROE target, it's not an aspiration

And our highly engaged and aligned team of extremely talented employees.

We continue to align the interests of our employees and our shareholders. While our combined ratio performance was profitable it was higher than our 95% target.

Our variable compensation incentive plan, which all includes all employees reflects this we are focused on delivering improved underwriting results, even though our 2023 operating ROE exceeded our target.

Our standard commercial lines and excess and surplus lines segments represent approximately 90% of our business.

They are delivering underwriting profitability that is in line with or better than our 95% combined ratio target.

Maintaining underwriting discipline and price adequacy in these segments remains a top priority.

In standard commercial lines, the marketplace continues to be constructive.

Our pricing is holding up and our retention metrics remain historically high.

This segment's strong underwriting performance and growth allow us to focus our more significant actions on the underperforming portions of the portfolio.

Sophisticated tools with granular pricing and retention data that allow us to manage our renewal inventory by profitability cohort. This.

John Marchionne: Our consistent and disciplined profitable growth and approach to enterprise risk management have served our shareholders well. Over the past 10 years, tangible book value per share plus accumulated dividends grew at a compound annual rate. We believe this is our industry's best long-term indicator of value. Over the same period, annualized total shareholder return was 15.6%, exceeding the S&P Property Casualty Index by 2.2 points per year and the S&P 500 by 3.6 points per year. We are proud of this track record of strong operating performance, growth, and excellent shareholder returns that few in our industry have. Although we reported our 18th consecutive year of net favorable prior year casualty reserve development, we recorded net adverse casualty development of $10 million in the fourth quarter. Included in this development was an increase of $55 million in general liability.

This includes non pricing actions such as in property, where we are increasing wind and hail deductibles and the most catastrophe prone areas and pushing the use of hail cosmetic damage exclusions we.

We are also increasing all other peril deductibles.

Our unique operating model resonates with our distribution partners, providing opportunities to grow our business organically.

We are a stable market and the trust, we build with our distribution partners supports our renewal goals and helps feed our new business pipeline with quality opportunities.

While submission activity has been elevated given marketplace disruptions, we remain disciplined as our teams focus on recognizing quality business and walking away from opportunities that you are not do not align with our appetite pricing or terms and conditions.

Net premiums written growth has been excellent mainly coming from rate and exposure with policy counts in standard commercial lines up 3% for the year.

John Marchionne: We believe this is attributable to the social inflation discussed in previous earnings calls that also is impacting the rest of the industry. In recent years, we have increased our loss trend and have seen severities follow suit, partially offset by favorable frequency. We believe our prudent planning and reserving approach has served us well, while favorable frequency trends continue. However, general liability severities have emerged somewhat higher than... The development was mostly on accident years 2015 through 2020, with an average impact of about one loss ratio point on general liability. In the fourth quarter, the adverse general liability development was largely upset by $50 million of favorable work.

Within property, we achieved renewal pure rate of 12, 1% and four 9% of exposure increases for the year, producing a 17, 6% increase in total renewal premium.

In commercial auto renewal pure rate was nine 8% with increased exposure of four 4% for the year, resulting in a 14, 6% total renewal premium increase.

At the lineup business strategic business unit and regional levels. We have detailed plans to continue refining our portfolio and build on our flagship segments success.

We're also seeing high levels of excitement from our distribution partners as we prepare to launch five new states for standard commercial lines in 2024.

By every important measure our excess and surplus line segment had a record year net premiums written grew 24% with an 86% combined ratio.

John Marchionne: For accident year 2023, we increased casualty loss costs by $14 million, primarily due to elevated frequencies and severities in personal auto and, to a lesser extent, commercial. Our 2023 accident-year loss ratios for general liability remain... With these adjustments, we remain confident about our overall booked reserve. However, we will continue to monitor these trends and their impact. Our competitive and crowded market makes it critical that we clearly demonstrate our value propositions to customers, distribution partners, employees, and investors. Our success is based on a unique combination of competitive advantages. Taken together, these competitive advantages create a winning formula for selection. They are a unique field model, placing empowered underwriting staff in close proximity to our distribution partners. Our ability to develop sophisticated risk selection, pricing, and claims management tools and embed them in the workflows of our frontline employees. A franchise value distribution model defined by meaningful and close business relationships with a group of top-notch independent agents and brokers.

E&S results are benefiting from both the portfolio repositioning we performed in past years and attractive market dynamics, our contract binding and brokerage operations delivered strong top and bottom line performance.

Contract binding as similar to our standard line small business and benefited from improved ease of doing business from our technology investments.

Brokerages that came to our standard lines middle market business we.

We see significant growth opportunities within our current appetite, which is mainly unchanged.

Growth in brokerage along with rate and exposure increases has increase the average E&S accounts size from approximately $3800 at the end of 2022 to approximately $4600 at year end 2023.

As with general liability and standard lines, we're very comfortable with our underwriting discipline business mix pricing and terms and conditions.

Personal lines represents approximately 10% of our business. Its combined ratio is well above our target. However, renewal pure price increased eight 9% during the quarter and we expect rate to further accelerate in 2024 into a range of 20% to 25% subject to regulatory approvals.

John Marchionne: Commitment to delivering a superior omni-channel customer experience enhanced by digital platforms and value-added service and a highly engaged and aligned team of extremely talented employees. We continue to align the interests of our employees and our shareholders. While our combined ratio performance was profitable, it was higher than our 95% target, our Variable Compensation Incentive Plan, which includes all employees. Thank you for watching.

We continue transitioning that personal lines book to our mass affluent target market.

For the quarter over 80% of new business in homeowners had coverage a values in excess of $500000.

While new business premiums increased 16% in the quarter, New policy counts declined 8% from deliberate curtailed production.

John Marchionne: We are focused on delivering improved underwriting. Even though our 2023 operating ROE exceeded our expectations, our standard commercial lines and excess and surplus line segments represent approximately 90% of our... They are delivering underwriting profitability that is in line with or better than our 95% combined ratio. Maintaining underwriting discipline and price adequacy in these segments remains a top priority. Thank you. Our pricing is holding up, and our retention metrics remain historically high. This segment's strong underwriting performance and growth allow us to focus our more significant actions on the underperforming portions of the portfolio. Sophisticated tools with granular pricing and retention data allow us to manage our renewal inventory by profitability. This includes non-pricing actions, such as in property, where we are increasing wind and hail deductibles in the most catastrophe-prone areas, pushing the use of hail cosmetic damage.

Higher average premium size is driven by both rate and exposure increases drove the premium increase.

In addition to rate actions, we seek to improve homeowners performance through the continuing transition to the target market and improved terms and conditions.

We stated last quarter that we are introducing depreciation schedule similar to actual cash value on older roofs, and implementing mandatory wind and hail deductibles and states most exposed to convert severe convective storms.

We strive to have all three insurance segments meet our profitability goals throughout the market cycles.

Diversification across and within these segments position us to provide maximum value to our distribution partners enhancing our revenue and income streams, while providing the operational flexibility needed to succeed in today's market.

I'll now turn the call over to Tony to discuss our fourth quarter and full year results and I'll be back with color on our 2024 guidance Tony.

John and good morning.

John Marchionne: We are also increasing all other perils... Our unique operating model resonates with our distribution partners, providing opportunities to grow our business. We are a stable market, and the trust we've built with our distribution partners supports our renewal goals. While submission activity has been elevated given marketplace disruptions, we remain disciplined as our teams focus on recognizing quality business and walking away from opportunities that do not align with our appetite, pricing, or terms and conditions.

We reported $2 <unk>, a fully diluted EPS in the fourth quarter up 46% from a year ago.

non-GAAP operating EPS was $1 94 up 33%.

Consequently, we had a very strong 18, 9% return on equity with an 18, 2% operating return on equity for the quarter.

For the year fully diluted EPS was $5 84.

Up 65% from 2022.

non-GAAP operating EPS was $5 89.

Up 17%.

We produced return on equity of 14, 3% for the year with operating return on equity of 14, 4%.

John Marchionne: Net premium written growth has been excellent, mainly coming from rate and exposure. Policy counts in standard commercial lines are up 3%. Within property, we achieved a renewal pure rate of 12.1% and 4.9% of exposure increases for the year, producing a 17.6% increase in total renewal. Commercial auto renewal pure rate was 9.8, with increased exposure of 4.4 percent for the year, resulting in a 14.6 percent total renewal. At the line of business, strategic business unit, and regional levels, we have detailed plans to continue refining our portfolio and build on our flagship segment's success. We are also seeing high levels of excitement from our distribution partners as we prepare to launch five new states for standard commercial lines.

As John noted this marks our 10th consecutive year of double digit operating return on equity.

Over those 10 years, our operating return on equity averaged 12, 2% exceeding our target, which is set approximately 3% to 400 basis points above our weighted average cost of capital.

Our GAAP combined ratio for the quarter was 93, 7% a one point improvement from $94 seven <unk> of fully diluted EPS fourth quarter. We did two 546% from a year ago and one non-GAAP operating EPS casualty reserve was $1 94 up 33% at the top of the consequently, one 'twenty threes can.

Bind ratio was 96, 5% consistent with our original guidance modest favorable development, which we do not plan for reduced the combined ratio by 0.2 points.

John Marchionne: By every important measure, our excess and surplus line segment had a record year. Net premium written growth was 24% with an 86% combined rate. E&S results are benefiting from both the portfolio repositioning we've performed in recent years and attractive market dynamics. Our contract binding and brokerage operations delivered strong top and bottom line performance. Contract binding is similar to our standard line of small business and benefits from improved ease of doing business from our technology.

Better than expected non cat property losses, and a lower expense ratio were offset by elevated catastrophe losses of six four points, which was one nine points above our expected four five points.

Our expense ratio for the year was 31, 4% better than the 32% long term target we established in 2019.

We maintain expense discipline, while making investments that support our strategic objectives. Consequently, we expect our 2020 for expense ratio to be relatively stable and this assumption is embedded in our combined ratio guidance.

John Marchionne: Brokerage is akin to our standard lines middle market. We see significant growth opportunities within our current appetite, which is mainly on... growth in brokerage, along with rate and exposure, has increased the average ENS account size from approximately $3,800 at the end of 2022 to approximately $4,600 at year-end 2021. As with general liability and standard lines, we are very comfortable with our underwriting discipline, business mix, pricing, and terms and conditions. Personal lines represent approximately 10% of our business, and the combined ratio is well above our target. However, renewal pure price increased 8.9% during the quarter, and we expect the rate to further accelerate in 2024 into a range of 20 to 25%, subject to regulatory approval. We continue transitioning the Personal Lines book to our mass affluent target.

In the quarter net unfavorable prior year casualty reserve development of $10 million added one point to the combined ratio.

At the line level $50 million of favorable prior year development in workers' compensation was more than offset by $55 million of adverse development in general liability and $5 million in personal auto.

The favorable prior year Workers' compensation development was primarily driven by better than expected severity in older accident years impacting our tail development factors, while the factor changes were relatively small. These factors are applied to all accident years frequency in the line continues to be favorable and more recent accident years.

While we are starting to see medical CPI increase wage growth, which directly impacts premiums is providing a meaningful offset.

Tony Harnett: For the quarter, over 80% of new business and homeowners had coverage values in excess of $500,000. While new business premiums increased 16% in the quarter, new policy counts declined 8% from deliberate curtailed production. Higher average premium sizes driven by both rate and exposure increases drove the, In addition to rate actions, we seek to improve homeowners' performance through the continuing transition to the target market and improve terms and conditions. We stated last quarter that we are introducing depreciation schedules similar to actual cash value on older roofs and implementing mandatory wind and hail deductions, are among the states most exposed to severe convective... As we strive to have all three insurance segments meet our profitability I'll now turn the call over to Tony to discuss our fourth quarter and full year results, and I'll be back with color on our 2024. Thanks, John, and good morning.

Adverse prior year General liability reserve development with severity driven and spread across prior accident years predominantly 2015 through 2020, we attribute this largely to the continued elevated impacts of social inflation.

We see this as an industry dynamic with higher propensity for attorney representation and litigation longer settlement times and higher settlement values.

Nonetheless, the composition of our general liability book has remained relatively consistent over time as we focus on our business within our appetite.

Putting this reserve increase in context, it represents about 3% of our general liability net reserves.

We remain comfortable with our current accident year loss picks for this line, while acknowledging the inherent risks.

For the current accident year, we took action in personal auto in the quarter, increasing loss caused by $9 2 million, which added nine one points to the personal lines combined ratio.

The adjustment was driven by increased claim frequency.

We also increased loss cost in commercial auto by $4 9 million impacting the quarterly standard commercial lines combined ratio by <unk> six points the.

The commercial auto adjustment responded to higher paid loss expenses driven by elevated litigation rates.

Consistent with recent quarters, our over all underlying combined ratio continues to be very strong.

Tony Harnett: We reported $2.01 of fully diluted EPS in the past year, up 46% from a year ago; non-GAP operating EPS was $1.94 on $33. And consequently, we had a very strong 18.9% return on investment, with an 18.2% operating return on equity for the. For the year, fully diluted EPS was $5.84, up 65% from 2020; non-GAAP operating EPS was $5.89, of 17.

Underlying combined ratio for the year was 93% three points better than 2020 to.

The fourth quarter is 92% underlying combined ratio was three seven points better than last year.

After tax net investment income was $78 million in the fourth quarter up 20% from the prior year period.

For the year after tax net investment income was $310 million above our original 2023 guidance of $300 million and up 33% from 2022.

Tony Harnett: We produced a return on equity of 14.3% for the year, with an operating return on equity of 14.3%. As John noted, this marks our 10th consecutive year of double-digit operating return on equity. Over those 10 years, our operating return on equity averaged 12.2. Our gap combined ratio for the quarter was 93.7%, a one-point improvement from 94.7% of fully diluted EPS in the fourth quarter, up 46% from a year ago. Non-GAAP operating EPS was $1.94, up 33%.

Over the last two years, we focused on building the portfolio book yield as interest rates rose during.

During the quarter, we invested $429 million of new money at an after.

At an average pre tax yield of six 7%.

As a result average pre tax book yield increased 11 basis points to the end to end the year at four 7%.

We expect this higher embedded book yields will provide a persistent source of elevated investment income going forward.

For 2023 investments generated 12 four points of return on equity up three points from nine 4% in 2022.

The portfolio remains conservatively positioned with total fixed income and short term investments representing 92% of the portfolio at year end and average credit quality of double a minus and a duration of four years.

Tony Harnett: Consequently, 2023's combined ratio was 96.5%, consistent with our original guidance; modest favorable developments, which we do not plan for, reduced the combined ratio by 0.2%. Better-than-expected non-capital property losses and a lower expense ratio were offset by elevated catastrophe losses of 6.4 points, which was 1.9 points above our expected 4.5. Our expense ratio for the year was $31.4%, better than the 32% long-term target we established in 2019. We maintain expense discipline while making investments that support our strategic goals. And consequently, we expect our 2024 expenses to be relatively stable, and this assumption is embedded in our combined ratio. In the quarter, net unfavorable prior year casualty reserve development of $10 million added one point to the combined... At the line level, $50 million of favorable prior year development in workers' compensation was more than offset by $55 million of adverse development in general liability and $5 million in personal liability. The favorable prior-year development in workers' compensation was primarily driven by better-than-expected severity in older action years, impacting our tail development factors. While the factor changes were relatively small, these factors are applied to all actions, and frequency in the line continues to be favorable in recent years.

Turning to investments, which report on a one quarter lag generated zero point $9 million of after tax income in the quarter and $21 2 million for the year up 16% from full year 2022.

2023 was an important year for us as a reinsurance buyer during the fourth quarter, we entered into our first catastrophe bond transaction through high point re Ltd.

Transaction received strong support providing it providing a new and valuable source of fully collateralized reinsurance capital from a broad panel of investors.

Transaction was upsized by 62, 5% to $325 million from the initial 200 million target pricing was within the initial guided range.

The coverage sits with it the top layer of our program at $500 million in excess of $700 million and provide 65% of that layers limit.

We also successfully renewed our property catastrophe reinsurance program effective January one going to market with a $1 $1 billion limit in excess of a $100 million retention.

This compared to our expiring $915 million limit in excess of $60 million retention while.

While the expiring program had various co participations, we fully placed all layers in the new treaty.

The increase in retention is largely comparable with the growth in our property portfolio and reflects our ability to obtain more losses.

Tony Harnett: While we are starting to see medical CPI increase, wage growth, which directly impacts premiums, is providing a meaningful opportunity. Adverse Prior Year General Liability Reserve, and others. Thank you.

A one in 250 year net probable maximum loss is now only 4% of GAAP equity for our peak peril of U S. Hurricane this is well within our risk tolerance and three percentage points lower than last year, 7%.

Tony Harnett: Thank you, predominantly 2015 through 2020. We attribute this largely to the continued elevated impacts of social inflation. We see this as an industry dynamic with higher propensity for attorney representation and litigation, longer settlement times, and a more competitive market with higher settlement values. Nonetheless, the composition of our general liability book has remained relatively consistent over time as we focus on our business within our, putting this reserve increase in content represents about 3% of our general liability net reserve. We remain comfortable with our current action at your loss pick for this line while acknowledging the inherent risk. For the current action of the year, we took action in personal auto in the quarter, increasing the loss cost by $9.2 million, which added 9.1 points to the personal lines combined. The adjustment was driven by increased claims.

The increased limit repurchase reflects our business is strong growth and expected future growth.

We had modest risk adjusted pricing increases consistent with the overall market.

We also achieved our marketed key terms and conditions.

Our reinsurance our reinsurance program includes casualty excess and property per risk treaties that renew on July one.

Our retentions on these trees are currently 2 million per occurrence for casualty and $5 million per risk for property.

Our capital position remains extremely strong with $3 billion of GAAP equity and $2 7 billion of statutory surplus at year end book value per share increased 13% in the fourth quarter due to our profitability and the interest rate rally that reduced after tax unrealized losses for fixed income securities for the year.

Tony Harnett: We also increased loss costs in commercial auto by $4.9 million, impacting the quarterly standard commercial lines combined ratio by 0.1%. The commercial auto adjustment responded to higher paid losses, driven by elevated litigation. The underlying combined ratio for the year was 90.0, three points better than 2020. After tax net investment income was $78 million in the fourth quarter, up 20% from the prior year period.

Book value per share increased 18%.

Adjusted book value per share was up 10% for the year.

Year end premiums to surplus was $1 five one times up from $1 44 in 2022.

The ratio increased due to strong insurance operations growth.

Our internal operating targets for premium to surplus is 135 to 155 times, although we are comfortable moving above that range.

Our debt to capital ratio of 14, 6% and strong operating cash flow provide ample financial flexibility to support organic growth plans and execute our strategic initiatives.

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

Tony Harnett: For the year after tax, net investment income was $310 million, above our original 2023 guidance of $300 million and up 33% from 2020. Over the last two years, we focused on building the portfolio's book yield as interest rates increased. During the quarter, we invested $429 million of new money at an average pre-tax yield of 6.7%. As a result, average pre-tax book yield increased 11 basis points to end the year at 4.7%.

We view organic growth within our insurance operations as the most attractive opportunities to deploy capital.

Turning to 2024 guidance.

We expect our GAAP combined ratio to be 95, 5%, including five points of catastrophe losses.

As always we assume no prior accident year Reserve development.

After tax net investment income is expected to be $360 million. This represents a 16% increase over 2023, primarily reflecting our fixed income securities portfolios meaningful increase in book yield after tax net investment income guidance includes $32 million from alternative investments.

Tony Harnett: We expect this higher embedded book yield will provide a persistent source of elevated investment income going forward, up three points from 9.4% in 2020. The portfolio remains conservatively positioned, with Total Fixed Income and Short-Term Investments representing 92% of the portfolio at year-end, an average credit quality of AA- and a duration of 4 years. Alternative Investments, which report on a one-quarter lag, generated $0.9 million of after-tax income in the

Our guidance includes an overall effective tax rate of approximately 21% with a 25% effective tax rate on investments and 21% on all other items weighted.

Weighted average shares are estimated to be 61 $5 million on a fully diluted basis.

This does not reflect any assumption for share repurchases, we may make under our existing authorization.

Tony Harnett: The total is $21.2 million for the year, up 16% from full year 2020. 2023 was an important year for us as a reinsurance buyer. During the fourth quarter, we entered into our first catastrophe bond transaction through high-point relimitation. The transaction received strong support, providing a new and valuable source of fully collateralized reinsurance capital from a broad panel of investors. The transaction was upsized by $62.5 million to $325 million from the initial 200 million.

Now I'll turn the call back to Jon Thanks, Tony.

This call we've highlighted the industry's elevated and uncertain loss trends that are influenced by economic inflation, social inflation increased catastrophe loss frequency and the unusual frequency and severity patterns in recent years.

These dynamic industry wide factors have pressured loss costs, necessitating our continued focus on adequate pricing.

In 2023, we entered the year than expected loss trend of six 5%.

Our overall renewal pure price excluding exposure change was six 8%.

Tony Harnett: Pricing was within the initial guided range. The coverage sits within the top layer of our program at $500 million, in excess of $700 million, and provides 65% of that layer's... We also successfully renewed our Property Catastrophe Reinsurance Program, effective January, going to market with a $1.1 billion limit in excess of a $100 million return. This compared to our expiring $915 million limit in excess of $60 million, while the expiring program had various co-participations. We fully placed all layers in the new.

We are confident in our ability to execute our renewal strategy and achieved renewal pure price commensurate with expected loss trends.

We have demonstrated this throughout market cycles and it continues to be the cornerstone of our consistently profitable combined ratio performance.

Our 2024 combined ratio guidance reflects an overall expected loss trend of approximately 7% up from six 5% a year ago.

This consists of 4% for property and 8% for casualty, reflecting our updated views of both economic and social inflation and expected frequency trends.

Tony Harnett: The increase in retention is largely comparable with the growth in our property portfolio and reflects our ability to obtain more losses. For example, a 1-in-2, 50-year net probable maximum loss is now only 4% of GAAP equity for our peak peril of U.S. hurricanes. This is well within our risk tolerance and three percentage points lower than last year. The increased limit we purchased reflects our business' strong growth and expected. We had modest risk-adjusted pricing increases consistent with the overall market. We also achieved our marketed key terms and conditions. Our Marine Insurance Program includes Casady, Exxon, and the Property Per Risk Treaties that renew on July 1. The retentions on these treaties are currently $2 million per occurrence per casualty. Our capital position remains extremely strong, with $3 billion of GAAP equity and $2.7 billion of statutory surplus at year-end. Book value per share increased 13% in the fourth quarter due to our profitability and the interest rate rally that reduced after tax unrealized losses for fixed income. For the year, book value per share increased 18%.

In light of recent experience, particularly related to secondary apparel. We've also increased our catastrophe loads of 5%.

These trends are all embedded in our 2024 loss picks and reflected in our guidance.

Our guidance implies a healthy ROE outlook for 2024 that exceeds our 12% target with ample runway to continue our trajectory of profitable growth.

We have the team sophisticated tools and disciplined execution to effectively manage through these market dynamics and believe we are operating from a position of strength.

I'll now turn the call over to the operator to begin our question and answer session.

Thank you we will now begin the question and answer session. If you'd like to ask a question you May press star followed by the number one please on mute your phone and record your name and company name trading went from said your name and company name is required can address your question to withdraw. Your question you May Press Star and then number two we have questions on.

The first question is coming from the line of Michael Phillips Oppenheimer. Your line is now open.

Thank you and good morning.

My first question is on the <unk> stuff, John and Tony the 55 million.

You talked a lot about the severity piece, which would get here and a lot of that from other people too but have you seen anything in terms of just the different reporting pattern, that's been lengthened because of that as well.

Tony Harnett: The adjusted book value per share was up 10%, and year-end premium to surplus was 1.51 times, up from 1.44 in 2020. The ratio increased due to strong insurance operations. Our internal operating target for premium to surplus is 1.35 to 1.55 times, although we are comfortable moving above that. Our debt-to-capital ratio is 14.6%. We did not repurchase any shares during the quarter or year, and we have $84.2 million in remaining capacity under our share repurchase authorization.

Yes, Mike I appreciate the question this is John.

You highlighted severity is really the driver of what we've been seeing frequencies and we're talking GL in particular frequency trends have continued to be I'll call them favorable but theres. No question. There has been an extension of reporting patterns, where we've seen that for a couple of years now and I would say that is.

Incorporated into how will you evaluate the more recent accident years in terms of expected claim counts versus actual claim counts right.

But I think that that started in the kind of latter part of the pandemic and has persisted and I would say that that's factored into how we evaluate the more recent accident years.

Tony Harnett: We view organic growth within our insurance operation, turning to 2024 guidance. We expect our gap combined ratio to be 95.5%, including five points of catastrophe. As always, we assume no prior accident. You're reserved.

Okay. Thanks, sorry, I mean, I asked because it was interesting that you included in that 55 comments, though part of that included extra 2020. So I guess that means that the higher severity had talked about it's all set and any kind of frequency benefit that I think was there in that accident year. So I guess when it make sure. That's the case and then if so does that mean.

Tony Harnett: After-tax Net Investment Income is expected to be $316 million. This represents a 16% increase over 2020, primarily reflecting our fixed income securities portfolio's meaningful increase in book value. After Tax Net Investment Income Guidance includes $32 million from alternative sources. Our guidance includes an overall effective tax rate of approximately $21,000, with a 20.5% effective tax rate on investment and 21% on all other items. The weighted average shares are estimated to be $61.5 million on a fully diluted basis.

Any risk of that.

More recent accident years also being affected which is kind of what you just alluded to as well.

Yes, I appreciate the follow up point and just a couple of additional points. There first of all with regards to the 2020.

Comment relative to GL is accurate.

That was included in our updated V.

And the $55 million that we booked that was included in those accident years, but I do want to kind of reinforce the other point, which is that that accident year in total has emerged favorably.

John Marchionne: This does not reflect any assumption for share repurchases we may make under our existing author's guidance. Now, I'll turn the call back. Thanks, Tony. On this call, we have highlighted the industry's elevated and uncertain loss trends that are influenced by economic inflation, social inflation, increased catastrophe loss frequency, and unusual frequency and severity patterns. These dynamic, industry-wide factors have pressured law... necessitating our continued focus on adequate, In 2023, we entered the year with an expected loss trend of 6.5%. Our overall renewal pure price, excluding exposure change, was $6.8 million. We remain confident in our ability to execute our renewal strategy.

Across all lines and even within casualty has emerged favorably, but we've got movements in between individual lines and that's what you saw US report with regard to the GL emergence with regards to the more recent accident years. In addition to the point, we just talked about with regard to recognizing that slight an extension.

Reporting patterns I think the other important point to consider is if you look back at our disclosures in our guidance.

<unk> been moving expected loss trends higher on a pretty consistent basis. So if you look back to 2000 22021.

Our forward trend assumption for casualty was around 4%.

And then in 'twenty, two we moved that up to five 5% and 23. It was 6% and now we're at eight and actually on an ex workers' comp basis is a little bit higher than that.

John Marchionne: Chief Renewal Peer Price Commensurate with Expected Lost, which has demonstrated this throughout market cycles, continues to be the cornerstone of our consistently profitable combined ratio. Our 2024 combined ratio guidance reflects an overall expected loss trend of approximately seven, up from six and a half percent a year. This consists of four percent for property, reflecting our updated views of both economic and social inflation and expected free, In light of recent experience, particularly related to secondary peril.

And those are fully embedded in our loss ratios that were in our guidance and we're in our booking and I think that's probably one of the more important pieces to understand in terms of how companies are reacting to this the other thing I'll say is and this has been the case not just for the 24 trend, but for the last the most recent accident years as well.

Is this what was <unk>.

Consistent pattern of better than expected frequencies, we have not assumed that in our in our forward loss trends either for 'twenty four or for the last three accident years that was really a severity move at assumed.

Operator: We've also increased our catastrophe load to 5%, and trends are all embedded in our 2024 loss picks, which are selected in our guide. Our guidance implies a healthy ROE outlook for 2024 that exceeds our 12% target with ample runway to continue our trajectory of profitable growth. We have the team, sophisticated tools, and disciplined execution to effectively manage through these markets, and believe we are operating from a position. I'll now turn the call over to the operator to begin our question and answer session. Thank you. We will now begin the question and answer session. If you would like to ask a question, you may press the star followed by the number one.

Claim counts are frequencies to remain relatively stable and I think that's also the right way for us to be thinking about it and approaching it.

Yeah, that's perfect. Thanks for all that color John.

I guess second question is just kind of related to all this is.

Youre not seeing any of that spillover into your commercial auto book, It sounds like and I want to make sure. That's the case I think recently, you've talked pretty positively about your views on the outlook of commercial auto so nothing spilling over there right now.

As the question and just kind of your outlook for that segment of commercial auto.

We think we've made a very minor adjustment in commercial auto, but if you look back over the last several quarters I would say that commercial auto has been pretty stable I think what happened in commercial auto is the severity impacts hit a little bit quicker.

Operator: Please unmute your phone and record your name and company name clearly when prompted. Your name and company name are required to introduce your question. To withdraw your question, you may press star and the number two.

Operator: We have questions in queue. The first question is coming from the line of Michael Phillips of Oppenheimer. Your line is now open. Thank you. Good morning, everybody.

And probably more so in 2021 and that then got incorporated into our forward expectations in a lot stronger pricing and I think not just for us but for the industry commercial auto pricing has been a lot firmer for a lot longer than we've seen in GL.

John Marchionne: My first question is on the DL stuff, John and Tony, the $55 million. You talked a lot about the severity piece, which we hear a lot about from other people, too. But have you seen anything in terms of just a different reporting pattern that's been lengthened because of that as well? Yeah, Mike, appreciate the question. This is John.

I would say there you've seen some moderation in the commercial auto loss trends in recent quarters and I think that in the context of continued strong rate, which for us was 10% in the quarter and just a hair under 10% on a full year basis, I think sets up well again, there's uncertainty just because of the environment.

John Marchionne: So as you highlighted, severity is really the driver of what we've been seeing. Frequencies, and we're talking GL in particular, frequency trends have continued to be, I'll call them favorable, but there's no question there has been an extension of reporting patterns. But we've seen that for a couple of years now.

But I think when you look at those factors in commercial auto.

We do have a better outlook on that line.

Okay. Thank you John appreciate it.

Thank you we will move not that our next question coming from the line of Mike James scale of BMO. Your line is now open.

John Marchionne: And I would say that it's incorporated into how we evaluate the more recent accident years in terms of expected claim counts versus actual claim counts. But I think that started in the kind of latter part of the pandemic and has persisted. And I would say that's factored into how we evaluate the more recent accident years. Okay, thanks. I mean, I asked because it was interesting that you included in those 55 comments that part of that included the year 2020. So I guess that means that, you know, the higher severity had talked about offsetting any kind of frequency benefit that I think was there in that accident year. So I just want to make sure that's the case.

Hey.

Can you walk us through.

You did it could walk through kind of how you've been increasing your loss trend on casualty over the years.

Tim.

Holds true on the catastrophe loss ratio, maybe you can kind of help us understand what caused that increase.

<unk>.

Are you picking two or higher.

Is it picking to Ah Yeah, if you could help us think through that and if there is any business mix impact there too or is it just.

Trends been worse, and you're trying to get ahead of it.

Yeah. Appreciate the question, it's really a combination of our updated modeling.

John Marchionne: And then, if so, does that mean, you know, any risk of the more recent accident years also being affected, which is kind of what you just alluded to as well? Yeah, I appreciate the follow-up point and just a couple of additional points there. First of all, with regard to 2020, the comment relative to GL is accurate, and that was included in our updated view, and the $55 million that we booked, that was included in those accident years. But I do want to kind of reinforce the other point, which is that the accident year in total has emerged favorably across all lines, and even within casualty has emerged favorably. But we've got movements in between individual lines, and that's what you saw us report with regard to the GL emergence.

And our more recent experience. So if you were to look at so the five points that we have in our guidance for 2024 is kind of right in between the five and 10 year averages. So if you were to just look at the 10 year average, it's about four 7% and if you look at the five year average is about five 4%. So we think just based.

Purely on our more recent experience plus modeling update.

That's a pretty solid assumption for us.

Theres always going to be a little bit of business mix in there and the growth by segment will influence that.

But that's really how we landed at a five point assumption.

Got it.

And I guess, just going thinking about just the trends on loss costs have been.

Entering higher but not just for you know I guess overall for for for years now.

John Marchionne: With regard to the more recent accident years, in addition to the point we just talked about with regard to recognizing that slight extension in reporting patterns, I think the other important point to consider is that, if you look back at our disclosures and our guidance, we've been moving expected loss trends higher on a pretty consistent basis. So if you look back to 2020 and 2021, our forward trend assumption for casualties was around 4%, and then at 22, we moved that up to 5.5%. In 23, it was 6%, and now we're at 8, and actually, on an ex-worker's comp basis, it's a little bit higher than that.

Yeah.

You guys are in a very good spot where you know you have very consistent returns you've got good pricing power, but does.

Does this.

Do you think that.

The marketplace, which also seems to be experiencing.

<unk>.

Trends.

Kind of bodes well for for pricing power in 24, because I feel like feel like a consensus amongst investors just more of that pricing more likely to fall then.

Increase.

If you have any comments there.

Yes, so Mike.

John Marchionne: And that's fully embedded in our loss ratios that were in our guidance and were in our booking. And I think that's probably one of the more important pieces to understand in terms of how companies are reacting to this. The other thing I'll say is, and this has been the case not just for the 24 trend but for the last, the most recent accident years as well, despite what was a consistent pattern of better than expected frequencies, we have not assumed that in our forward loss trends, either for 24 or for the last three accident years. That was really a severity move and assumed claim counts or frequencies to remain relatively stable. And I think that's also the right way for us to be thinking about it and approaching it. Yeah, that's perfect. Thanks for that color, John.

Sensors.

Pricing remains constructive in our business and again I think.

With different companies you have to cut through their portfolio and to the extent there are more.

They're more weighted towards professional liability or cyber or D&O.

Might see a different pattern, but for us when you focus on core general liability workers' compensation property automobile and business owners I would suggest that based on what we're seeing and I think everybody else is seeing from the social inflationary factors the pricing environment that we've seen.

In the last couple of quarters will persist and there is even potential for a little bit of acceleration at least on a line by line basis and I think that's where you really have to take this in pieces I think GL is the line that I would expect to firm a little bit more and I know when you talk liability. It does include G L plus.

John Marchionne: Um, my second question is just kind of related to all this, is you're not seeing any of this spill over into your commercial auto book? It sounds like, and I want to make sure that's the case. You know, I think recently you've talked pretty positively about your views and the outlook for commercial auto. So nothing's going over there right now, is the question and just kind of your outlook for that segment, commercial auto. We've made a very minor adjustment in commercial auto. But if you look back over the last several quarters, I would say that commercial auto has been pretty stable. I think what happened in commercial auto is that the severity impacts hit a little bit quicker, and probably more so in 2021.

Professional liability and DNO and cyber I'm talking just standard general liability I think that's where.

More of the pressure has been and that Hasnt been as strong from a pricing perspective as auto and commercial property have been for the last couple of years. So while you might see <unk> come down a little bit I think it will still be strong and I think you might see some movement higher in GL, but we feel good if we look at our retention is pretty.

Closely and measure them, a number of different ways to understand the market reaction to our pricing and our retentions continue to run really strong on <unk>.

Standard commercial launch.

And I think that bodes well.

John Marchionne: And that then got incorporated into forward expectations and much stronger pricing, and I think not just for us but for the industry. Commercial auto pricing has been much firmer for a lot longer than we've seen in GL.

Got it and if I could sneak one final one in.

You've had some management changes in recent months.

It.

Has a new set of eyes are different set of eyes are different people in charge of the.

Have any processes recently does that any impetus for some of these changes that were made in terms of the loss assumptions and.

John Marchionne: So I would say there you've seen some moderation in the commercial auto loss trends in recent quarters. And I think that in the context of continued strong rates, which for us were 10% in a quarter and just a hair under 10% on a full year basis, I think sets up well, again, there's uncertainty, just because of the environment we're in. But I think when you look at those factors in commercial auto, we I think we do have a better outlook on that line. Okay.

Served changes.

Not at all so it's actually the same mice and I want to reinforce that point. So obviously mark left at the end of Q3, but the rest of US who are always involved alongside of Mark.

Are the same group that and have the same philosophy and the same approach to evaluating our results and we are evaluating our reserves and that includes myself. It includes our chief Actuary, who has been here for a long time and continues to be here and then includes Tony who is the chief accounting officer, who he's been with the company 24 plus years, but the last seven as the Chief Accounting Officer before.

John Marchionne: Thank you, John. I appreciate it. Thank you. We will move now to the next question coming from the line of Mike Zaremski of BMO. Your line is now open. Could you walk us through, you did a good walkthrough of how you've been increasing your loss trend on casualties over the years, the same, ambassador to the CEO, Under Secretary of Natives Attorney representing the Cal State of Oregon. Thought I would be happy to take it. Thank you, Steve. Steve

Before becoming interim CFO was also deeply involved in all decisions not just related to reserve a spot all accounting matters. So it's a very consistent leadership group.

And a very consistent philosophy, but I appreciate the question because I think it's a great opportunity to kind of reinforce that point.

Unnamed Speaker: Thank you. I would like to thank you all for having us today. Hopefully, I will meet R tiger zipper.

Thank you.

Unnamed Speaker: R pri is my batch. You have heard of R prizek. Thank you for having us on. We spent some time bringing you... the trend's been worse, and you're trying to get ahead of it. Yeah, I appreciate the question. It's really a combination of our updated modeling and our more recent experience. So if you were to look at, the five points that we have in our guidance for 2024 are kind of right in between the five and 10 year averages. So if you were to just look at the 10 year average, it's about 4.7%. And if you look at the five-year average, it's about 5.4%. So we think, you know, just based purely on our more recent experience plus modeling update, that's a pretty solid assumption for us. Now there's always going to be a little bit of business mix in there, and the growth by segment will influence that, but that's really how we landed on a five-point assumption. I got it.

Thank you we'll move now to the next question coming from the line of Paul Newsome of Piper Sandler. Your line is now open.

Good morning, Paul Your line is now open.

Good morning, sorry about that.

Was hoping we could switch to.

Investment income in <unk>.

Arguably.

Large expected improvement.

Next year.

That new money yield number that you mentioned seem pretty darn good.

Is there anything under the Hood there in terms of a shift in what you're investing in.

Sure.

Or anything else that would give you that sort of lift I mean everyone's seen a lift but it seems to be a bigger lift.

A lot of folks are talking about.

Through 'twenty four.

Yeah, Great question. So I think a lot of this is really indicative of the hard work that was done over the last two years to really build the embedded book yields.

John Marchionne: And I guess just, you know, just thinking about just the trends on loss costs have been, you know, inching higher, but not just for, you know, I guess, overall, for, for, for years now. You know, and you guys are in a very good spot where, you know, you have very, you know, consistent returns. You have got good pricing power, but, you know, does this, do you think that The Marketplace, which also seems to be experiencing similar trends, this kind of bodes well for pricing power in 24, because I feel like the consensus amongst investors is more that, you know, pricing's more likely to fall than increase, if you have any comments there. Yeah, so my sense is... pricing remains constructive in our business.

Since the beginning of the of the.

The interest rate cycle from year end 'twenty, one we've picked up a 173 basis points of embedded book yield.

And that allows us to really have a solid view of our ability to continue to pick up investment investment income on a go forward basis and have that strong contribution to operating Roe.

The overall profile of the portfolio remains relatively consistent but when you when you have the opportunity to put money to work in investment grade fixed income at five five or 6% on a pre tax basis.

How's you to really lock in those yields for an extended period of time, and that's really allowed us to boost that return and with an invested asset leverage a little over three times.

Don't have to take out a lot of additional risk to produce that kind of upside from an ROE perspective, so nothing significant in terms of shifting the strategy in fact, I would say the overall bias would remain up in quality. When you think about those investment grade fixed income returns that we're getting it really raises the bar on.

John Marchionne: And again, I think with different companies, you have to cut through their portfolio, and to the extent they're more, they're more weighted towards professional liability or cyber or D&O. You might see a different pattern, but for us, when you focus on core general liability, workers' compensation, property, automobile, and business owners, I would suggest that based on what we're seeing, and I think everybody else is seeing from these social inflationary factors, the pricing environment that we've seen in the last couple of quarters will persist, and there's even potential for a little bit of acceleration, at least on a line-by- I think GL is the line that I would expect to firm a little bit more, and I know when you talk liability, it does include GL plus professional liability, D&O, and cyber. I'm talking just about standard general liability.

Investing in risk assets, which and we've been sitting at the lower end of our target range from a risk asset perspective, it just over 10%.

Most shifting duration those shifting within.

<unk>.

Credit quality say ratio.

The ratio was right around four years I think we finished at about four years spent around four years for the last three years and we've been.

A double a minus or a plus for the last three years.

Okay.

That's great. Thank you very much I appreciate the help as always.

Thank you.

Thank you so much and we will move that then the next question.

From Bank of America. Your line is now open.

John Marchionne: I think that's where some more of the pressure has been, and that hasn't been as strong from a pricing perspective as auto and commercial property have been for the last couple of years, so while you might see auto come down a little bit, I think it'll still be strong, and I think you might see some movement higher in GL, but we feel good. We look at our retentions pretty closely and measure them a number of different ways to understand the market reaction to our pricing, and our retentions continue to run really strong on standard commercial lines, and I think that bodes well. I got it. If I could sneak one final one in,

Hi, everyone.

Sticking with morning Grace.

I was hoping we could get maybe a little bit more color on the workers' comp reserve release, I think you all had previously flagged, but just given the.

Extended period of favorability in that line going forward it might.

Slow a little bit.

That seems to have not been the case this quarter. So I was just curious if anything has changed and just kind of the drivers favorability there.

I think the biggest difference from what you had seen in previous quarters is as we do every year in Q4 as we update our tail factor study and the <unk> study is really designed to.

John Marchionne: You know, you've had some management changes in recent months. Has a new set of eyes or different set of eyes or different people in charge of any processes recently, does that have any impetus for some of these changes that were made in terms of the loss assumptions and reserve changes? Not at all. So it's actually the same eyes.

To understand the movement to ultimate for your accident years that are outside of your typical reserving triangles. So think 20 years and older and we update that based on our on our own experience blended within this industry experience and data and that was a big driver of the overall movement in comp in the quarter.

Yeah.

Thanks, and I guess thinking about the 95, 5% combined ratio for next year.

John Marchionne: And I want to reinforce that point. So obviously, Mark left at the end of Q3. But the rest of us who are always involved alongside Mark are the same group and have the same philosophy and the same approach to evaluating our results and evaluating our reserves. And that includes myself; it includes our chief actuary, who's been here for a long time and continues to be here. And it includes Tony, who has been with the company 24 plus years, but the last seven as the chief accounting officer before before becoming interim CFO, was also deeply involved in all decisions, not just related to reserves, but all accounting matters. So it's a very consistent leadership group and a very consistent philosophy.

I think everyone's expecting some pretty strong improvement in personal lines over the course of the year, but.

E&S has been running quite favorable here lately I guess I'm just trying to think about the timing for a potential return to that longer standing 95% combined ratio and I guess just.

If we should consider E&S favorability to be kind of Martin during and maybe offset ongoing.

We underwriting in the personal lines book that that might take.

Beyond next year to improve to the top.

<unk>.

Yeah. So.

We pride ourselves in providing very detailed guidance, but we do stop short of guiding at the individual segment level and I guess you pointed out overall the guidance is a 95, 5% on an underlying basis. When you take out that five point cat assumption, it's relatively stable year over year.

I think the pieces, you're pointing to our reasonable approaches which is when you think about the run rate performance of E&S and the rate we've been achieving in that line and continue to earn in that line, we expect strong margins to continue.

Unnamed Speaker: But I appreciate the question because it's a great opportunity to kind of reinforce that point. Thank you. Thank you. We will move now to the next question coming from the line of Paul Newsome of Piper's Lander. Your line is now open. Your line is now, President. Good morning.

And I think from a commercial lines standpoint, which we're currently running right around that target just a little over 95 strong rate, which is running 73 in the quarter, 7% for the full year in line with where we had loss trends going into the year. So stability in commercial lines based on those major factors.

Tony Harnett: Sorry about that. I was hoping we could switch to net investment income and the remarkably large expected improvement next year. You know, that new Money Hill number that you mentioned seemed pretty darn good. You know, is there anything under the hood there in terms of a shift in what you're investing in or anything else that would give you that sort of lift?

<unk> I think would also be a good assumption and then as we've talked about and reinforce we expect to have rate level written in personal lines over the course of 20 of this year of 2024 in that 20% to 25% range.

So again, we don't we don't break down our loss trend assumptions by segment, but we've got a pretty healthy loss trend assumption in personal lines, along with that rate level. This is not going to achieve our target margin in 2024, but we expect as we continue to earn that rate increase.

Tony Harnett: I mean, everyone's seeing a lift, but it seems to be a bigger lift than a lot of folks are talking about for 24. Yeah, Paul, great question. So I think a lot of this is really indicative of the hard work that was done over the last two years to really build the embedded book yield. So since the beginning of the interest rate cycle, you know, from year end 21, we've picked up 173 basis points of embedded book yield. And that allows us to really have a solid view of our ability to continue to pick up investment and investment income on a go forward basis and have that strong contribution to operating ROE. The overall profile of the portfolio remains relatively consistent.

Over 24% to 25 on both the written and earned basis and continue to transition that broke and continue to refine our pricing models that we will put ourselves on a good glide path to that target.

Thank you.

Thank you Chris.

Thank you so much and we will now move to the next question coming from the line of Scott <unk> of RBC capital markets. Your line is now open.

Scott Your line is now open.

Tony Harnett: But when you when you have the opportunity to put money to work at an investment grade fixed income at five and a half or 6% on a pretax basis, it allows you to really lock in those yields for an extended period of time, And that's really allowed us to boost that return. And with an invested asset leverage of a little over three times, we don't have to take on a lot of additional risk to produce that kind of upside from an ROE perspective. So nothing significant in terms of shifting the strategy. In fact, I would say the overall bias would remain towards quality. When you think about those investment-grade fixed income returns that we're getting, it really raises the bar on investing in risk assets, which is why we've been sitting at the lower end of our kind of target range from a risk asset perspective at just over 10%. No shift in duration; no shift within.

Hi, good morning.

Yes, just a quick question on the GL Reserve development you had there is there any other detail you can provide on that just in terms of some of the risks or the class classes, where you where you had the development and did you see any in particular on the contractor side I was just just curious if you can give more color on that.

Yes, I would say, there's nothing unique from a segment or class of business perspective, now remember we are heavier in construction, we always have been.

Theres nothing that I would point too because the portfolio has been shifted and I think that's also important to understand we haven't had a big shift in our portfolio in terms of limits profile or industry classification that we have in that book of business, but it is more heavily weighted towards construction, but that's been the case throughout the last.

Two decades, so theres nothing thats shifted there, but I would say what we've seen on the severity side is pretty broad based and again I think as you would expect from a social inflationary perspective, they don't.

That trend doesn't differentiate between construction and other products type exposures.

Tony Harnett: The duration is right around four years; I think we finished that at four years? Four years for the last three years, and we've been at double A minus or A plus for the last three years. That's great. Thank you very much. Appreciate the help as always.

Okay. That's good.

And then just on Workers' comp you made a comment in the script about just seeing some higher medical trends, which I think there's a lot of people in the industry that we're talking about that now but.

Tony Harnett: Thank you. Thank you so much. We will move now to the next question. For Bank of America, your line is now open. Hi everyone. Morning, Grace.

How are you feeling about the line just for for yourselves and for the industry and do you expect that.

Rate increases will will finally start happening for the industry. This year.

Tony Harnett: I was hoping we could get maybe a little bit more color on the Workers' Comp Reserve release. I think that you had previously flagged that just given the names of Michael Zaremski, Amit Kumar, Paul Newsome, Arash Soleimani, Scott Heleniak, Aishwarya. I think the biggest difference from what you've seen in previous quarters is, as we do every year in Q4, we update our tail factor study, and the tail factor study is really designed to understand the movement to ultimate for your accident years that are outside of your typical reserving triangle. So think 20 years and older.

And that book I don't see I don't think it will be this year.

And I say that because we have a pretty good line of sight as is everybody else into what the filed loss costs were for the majority of states for the for the almost the entirety of 2024 those loss cost filings are still negative on a on a blended basis, they're probably in the in the call. It mid single digit negative range across.

The entirety of our footprint now our actual rate change has been well below that running around 2% negative one 5% on a full year basis.

I do think as we look into 'twenty, five and maybe even the latter half of this year you might see those temporary back to flat, but I do think theres going to be a lag and the recognition of any movement from our loss experience perspective by the timing of bureaus start to to react to that but just another word on medical inflation.

Tony Harnett: And we update that based on our own experience blended with industry experience and data. And that was a big driver of the overall movement in comp in the quarter. And I guess thinking about the 95.5% combined ratio for next year, I mean, I think everyone's expecting some pretty strong improvement in personal lines over the course of the year, but ENS has been running quite favorable here lately. I guess just trying to think about the timing for a potential return to that longer-standing 95% combined ratio and, I guess, if we should consider ENS favorableness to be kind of more enduring and maybe offset ongoing re- So we pride ourselves on providing very detailed guidance, but we do stop short of guiding at the individual segment level.

When you when you look at the component parts of the CPI inside of medical that that impact workers' comp. The most its hospital services, which actually have moved a fair amount from a CPI perspective, and then physician services, which is the those two together are about 90% of the last dollar.

And then add in pharmaceuticals, which is the remaining roughly 10% on a blended basis, it's still running in the three and a half to high 3% range and wages are still around four so you still have a slight favorable gap. There I think the bigger question is at what point does the.

Tony Harnett: I think, as you've pointed out, overall, the guidance is 95.5, and on an underlying basis, when you take out that five-point CAD assumption, it's relatively stable year over year. I think the pieces you're pointing to are reasonable approaches, which is when you think about the run rate performance of E&S and the rate we've been achieving in that line and continue to earn in that line, we expect strong margins to continue. And I think from a commercial line standpoint, which we're currently running right around that target, just a little over 95, a strong rate, which is running, you know, 7.3 in the So stability and commercial lines based on those major factors would also be a good assumption.

The improved frequency that's been happening year after year start to subside and level out.

And I think that's more of an open question.

As you know and you've seen in our performance our growth in workers comp.

Been quite low because we've been hesitant to get overly aggressive on pricing and the market continues to be very actively actively competitive in that space and that's really hurt our ability to grow margins are good but we do think over time, you're going to see some pressure on those margins.

Okay.

That's good and just the last one I had was just on the the.

Our property Treaty and you take the retention up to 100 $100 from $60 million.

Was that I mean.

I understand you were talking about it.

In line with the exposure now increased increased size of the book and everything but it was some of that rate driven as well just.

What kind of drove the $100 million us to <unk> was there anything else beyond that and what did you what did you see for.

Tony Harnett: And then, as we've talked about and reinforced, we expect to have rates written in personal lines over the course of 20 of this year, 2024 in that 20 to 25% range. Now, again, we don't break down our loss trend assumptions by segment, but we've got a pretty healthy loss trend assumption in personal lines, along with that rate level. This is not going to achieve our target margin in 2024, but we expect as we continue to earn that rate increase over 24 and into 25 on both a written and an earned basis and continue to transition that book and continue to refine our pricing models, we will put ourselves on a good glide path to that target. Thank you, Grace.

Kind of rate increases at one one on reinsurance.

Yes. So just in response to the first question I think generally speaking the majority of.

Reinsurers have.

Established a threshold of one in 10 year attachment points generally speaking they wanted to get out of the earnings volatility business and they generally didn't want to play below 110, our current attachment point is right around 1% and seven.

So it's still a little bit lower than where the majority of reinsurers like to play, but as we do every year for us we're evaluating expected ceded premium by a layer versus expected ceded losses by layer and that had been a good economic trade for us for a long time and based on how pricing has had moved we decided to increase that retention.

Last year now we also only placed about half of the first layer last year. So it was 60 million attachment, but we were taking half of the first 40 60.

Tony Harnett: Thanks. Thank you so much. We will now move to the next question coming from the line of Scott Heleniak of RBC Capital Markets. Your line is now open. Scott, your line is now open. Good morning.

<unk> 60, so it really for all practical purposes or went from $80 million retention to $100 million retention and that's really what drove it from our perspective was market.

John Marchionne: Yeah, just a quick question on the GL reserve development you had there. Is there any other detail you can provide on that, just in terms of some of the risks or the classes where you had the development? And did you see any in particular on the contractor side? I was just curious if you could give more color on that.

<unk> has started to get a little bit tighter at that attachment point and then the pricing from our perspective wasn't as favorable but all in and I think this is Tony reinforced this point in his prepared comments is we were able to eliminate all co participations throughout the program and in addition to increasing the limit and adding.

John Marchionne: Yeah, I would say there's nothing unique from a segment or class of business perspective. Now, remember, we are heavier in construction. We always have been. But there's nothing that I would point to because the portfolio hasn't shifted. And I think that's also important to understand. We haven't had a big shift in our portfolio in terms of the limits profile or industry classification that we have in that book of business. But it is more heavily weighted towards construction. And that's been the case throughout the last few decades. So there's nothing that has shifted there.

And that cat bonds are one and $2 50 impact of equity one and 250 event impacts of equity is now down to 4% and we feel good about that and the only thing I would say about pricing on the on the renewal is when you look across layers and even overall I would say it was very much in line with where sort of industry.

John Marchionne: But I would say what we've seen on the severity side is pretty broad. And again, as you would expect from a social inflationary perspective, that trend doesn't differentiate between construction and other product exposure. Yeah, okay.

Prognostication was post one one from an overall market perspective, so I think we felt good about where Atlanta from a pricing standpoint.

Great I appreciate all the answers thanks.

Yes.

Thank you so much and we had the last person to ask a question coming from the line of Meyer Shields of <unk>. Your line is now open.

John Marchionne: That's, that's good. And then just on workers comp, you made a comment in the script about just seeing some higher medical trends, which I think, you know, there are a lot of people in the industry that are talking about that now. But how are you feeling about the line just for yourselves and for the industry? And do you expect that rate increases will finally start happening for the industry this year? in that book? I don't think, yeah, I don't think it'll be this year.

Great. Thank you and good morning, I apologize if this has been covered already but.

Within personal auto was there any true ups to prior quarters in 2023 in the loss pick if we take out the adverse development.

The address current year on year movement and personal in personal auto we had a.

John Marchionne: I say that because we have a pretty good line of sight, as does everybody else, into what the filed loss costs were for the majority of states for almost the entirety of 2024. Those lost cost filings are still negative on a blended basis. They're probably in the, call it, mid single-digit negative range across the entirety of our footprint. Now our actual rate change has been well below that, you know, running around 2% negative, one and a half percent on a full year basis. I do think as we look into 2025 and maybe even the latter half of this year, you might see those tempers back to flat.

We had roughly speaking a $9 million update to the current accident year.

And then on a full year basis that was about 16 $17 million.

Alright, that's helpful does that relate at all cute like are the development patterns for the mass affluent book any different than they were in sort of the standard book that you're moving away from.

No. We don't we don't really attribute this to the shift in the in the book of business as much as just quick recognition of.

John Marchionne: But I do think there's going to be a lag in the recognition of any movement from a loss experience perspective by the time the bureaus start to react to that. But just another word on medical inflation. When you look at the component parts of the CPI inside of medical that impact workers' comp the most, it's hospital services, which actually have moved a fair amount from a CPI perspective, and then physician services, which are those two together are about 90% of the lost dollar. And then add in pharmaceuticals, which is the remaining roughly 10%.

Some elevated frequency and severity in the current year that we wanted to react to as quickly as possible.

Okay perfect understood and then again apologies if I missed this hoping to get Steffi losses by line of business in the quarter.

Losses for commercial lines.

Commercial I assume that the personal adult home.

Yes, personal the home was $8 one.

John Marchionne: On a blended basis, it's still running in the three and a half to high 3% range, and wages are still around four. So you still have a slight favorable gap there. I think the bigger question is, at what point does the improved frequency that's been happening year after year start to subside and level out? And I think that's more of an open question.

Of the nine one in personal lines.

From a commercial lines, we had $13 8 million in commercial property, we had zero point $9 million in commercial auto and we had $1 five and business owners for a total of $16 1 million or two points on commercial lines.

Okay perfect. Thank you so much.

Thank you.

John Marchionne: As you know, and you've seen in our performance, our growth in workers' comp has been quite low because we've been hesitant to get overly aggressive on pricing, and the market continues to be very actively competitive in that space. And that's really hurt our ability to grow.

At this time speakers, we didn't have any questions on queue. You may proceed.

Great well. Thank you all for joining us. This morning, we appreciate your time and your questions and as always feel free to reach out to Brad with any follow up thank.

Thank you.

John Marchionne: Margins are good, but we do think over time you're going to see some pressure on those margins. Okay, no, that's good. And yeah, just the last one I had was just on the property treaty. You took the retention up to 100 million from 60 million. I understand you're talking about it's kind of in line with the exposure now, increased size of the book and everything, but was some of that rate-driven as well? What kind of drove the $100 million to $60 million? Was there anything else beyond that?

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

John Marchionne: What did you see for kind of rate increases at 1.1 on reinsurance? Yeah, so just in response to the first question, I think, generally speaking, the majority of reinsurers have established a threshold of one in 10 year attachment points. Generally speaking, they wanted to get out of the earnings volatility business, and they generally didn't want to play below one in 10.

John Marchionne: Our current attachment point is right around one in seven, so it's still a little bit lower than where the majority of reinsurers like to play. But as we do every year for us, we're evaluating the expected seeded premium by layer versus expected seeded losses by layer.

John Marchionne: And that had been a good economic trade for us for a long time. And based on how pricing has moved, we decided to increase that retention last year. Now we also only placed about half of the first layer last.

John Marchionne: So it was 60 million attachments, but we were taking half of the first 40 X of 60. So, really, for all practical purposes, it went from an 80 million retention to a hundred million retention. And that's really what drove it from our perspective was that market, uh, capacity had started to get a little bit tighter at that attachment point.

John Marchionne: And then the pricing, from our perspective, wasn't as favorable, but all in. And I think this is, and I know Tony reinforced this point in his prepared comments, we were able to eliminate all co-participations throughout the program, and in addition to increasing the limit and adding in that cat bonds are a one in two 50 impact on equity. The one in two 50 event impact to equity is now down to 4%, and we feel good about that.

John Marchionne: I, the only thing I would say about pricing on the renewal is, when you look across layers and even overall, I would say it was very much in line with where sort of industry prognostication was post one, one from an overall market perspective. So I think we felt good about where it landed from a pricing standpoint. Great. Appreciate all the answers.

Unnamed Speaker: Thanks. Thank you. Thank you so much. We have the last person to ask the question coming from the line of Mayor Shields of KBW.

Unnamed Speaker: Your line is now open. Great, thank you, and good morning. Have been covered already, but within personal auto, was there any screw-up to prior quarters in 2023 in the law specs, if we take out the adverse development in San Diego?

Unnamed Speaker: We had, roughly speaking, a $9 million update to the current action every year, and then on a full year basis, that was about 16, 17 million. Alright, that's helpful. Does that relate at all to, like, are the development patterns for the Mass Affluent book any different than they were in sort of the standard book that you're moving away from?

Unnamed Speaker: Now we don't we don't really attribute this to the shift in the book of business as much as just a quick recognition of some elevated frequency and severity in the current year that we wanted to react to as quickly as possible. Okay, that's perfectly understood. And then, again, apologies if I missed this; I was hoping to get Kodaksy losses by line of business. Scott Lawson for Commercial Lines. Commercial, I assume that's personal as well. Yes, personal. The home was 8.1 of the 9.1 in personal lines. For the commercial lines, we had $13.8 million in commercial property. We had $0.9 million in commercial auto, and we had $1.5 in business owners for a total of $16.1 million, or two points on commercial lines.

Unnamed Speaker: Okay, perfect. Thank you. Thank you. At this time, speakers, we don't have any questions on queue. You may proceed. Great. Well, thank you all for joining us this morning. We appreciate your time and your questions. And, as always, feel free to reach out to Brad with any follow-up. Thank you. And that concludes today's conference. Thank you so much, everyone for joining. You may now disconnect.